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Lennar agrees to buy luxury homebuilder WCI Communities for $643 million…or does it?

Agreement includes provision that allows WCI to seek better offer

WCI Communities, a “lifestyle community developer and luxury homebuilder” headquartered in Florida, announced this week that it agreed to a “definitive merger agreement” with fellow homebuilder Lennar for quite the premium, but the company is seeking out a better deal.

Here’s how it all breaks down.

WCI, which develops “amenity-rich, lifestyle master-planned communities catering to move-up, active adult and second-home buyers,” and “luxury high-rise tower units” in most of Florida’s largest markets, announced this week that Lennar agreed to buy the company for $643 million.

In the deal, Lennar agreed to acquire all of the outstanding shares of WCI common stock in a cash and stock transaction, which values WCI at $23.50 per share.

That price is based on a 37% premium above where WCI closed on Sept. 21, 2016.

The deal values WCI at approximately $643 million in equity, or an enterprise value of $809 million, the company said.

The transaction would include a portfolio of owned or controlled land totaling approximately 14,200 home sites, located in most of coastal Florida’s “highest growth and largest markets,” WCI said.

According to data provided by WCI, the company completed 1,118 homes with an average sales price of $444,000 during the 12 months ended June 30, 2016.

WCI is more than just a homebuilding business. The company also operates a real estate brokerage, title and lifestyles amenities businesses.

All of that would be included with the deal with Lennar, but the deal isn’t done yet, and it’s not due to the typical “customary closing conditions” that usually resolve themselves in fairly short order after a deal like this is announced.

This deal is different because it includes a 35-day “go shop” period, in which WCI’s board will actively search for a better deal than Lennar agreed to.

Specifically, WCI states that its board will “will actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals.”

The company cautions that “there can be no assurance” that a better deal is out there, but it’s going to look nonetheless.

The company said that it will not disclose the progress of the search for a better deal, unless and until the board has made a decision on a superior proposal.

As it stands now, the Lennar deal would be in the form of a merger of WCI and a newly formed Lennar subsidiary.

Under the terms of the agreement, WCI stockholders would receive $11.75 in cash and a fraction of a share of Lennar Class A common stock with a value of $11.75, based on the volume weighted average price of Lennar’s Class A common stock on the New York Stock Exchange over the 10 trading days preceding the closing of the merger, the company said in a release.

According to the company, the receipt of Lennar stock by WCI stockholders as a result of the merger is expected to be tax free. However, Lennar has the option of increasing the cash portion of the merger consideration, including paying the full $23.50 in cash.

The price is interesting considering what happened to WCI’s stock after the deal was announced on Thursday morning.

Lennar’s purchase price is based on WCI’s closing price on Sept. 21, which was $17.16 per share.

In the wake of the announcement, which hit the news wires before the market opened on Thursday, WCI’s stock shot up, climbing as high as $24.13 per share at 11:00 AM Eastern on Thursday.

WCI opened Friday’s trading at $23.73, and has hovered around that figure for most of the day.

As for Lennar, the company recently reported a weaker-than-expected third quarter, citing slow growth in certain markets as a headwind.

But now, the company may have an increased market share in Florida, thanks to the WCI deal – assuming that no other companies beat its offer.

“Our agreement with Lennar testifies to the legacy and quality of our brand, the attractiveness of our homes and communities, and the talent of our team members,” said Keith Bass, president and CEO of WCI.

“WCI Communities homebuyers and homeowners can expect a smooth transition and the continuation of the top-tier service they have come to expect from WCI,” Bass continued.

“The Lennar offer represents immediate and attractive value for our stockholders” Bass concluded. “In addition, the agreement includes a 35-day ‘go-shop’ provision that will allow WCI to seek out potentially superior proposals to maximize value for WCI stockholders.”

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