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Lennar finalizes $643 million acquisition of WCI Communities

Lennar pays all cash, citing upside for company’s stock

Lennar is officially growing its business as the company announced Friday that it completed the acquisition of WCI Communities, a “lifestyle community developer and luxury homebuilder” headquartered in Florida.

The companies first announced the deal back in September 2016, and after some financial due diligence, the deal is now complete.

As the companies first disclosed, Lennar’s final price tag for the acquisition is $643 million, or $23.50 per share, which was based on a 37% premium above where WCI closed on Sept. 21, 2016.

The deal includes a portfolio of “well-located, owned and controlled land” totaling approximately 13,700 home sites, located in “most of the highest growth and largest coastal Florida markets,” Lennar 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.

The deal also includes WCI's complementary real estate brokerage and title services businesses.

When the companies first announced the acquisition, the deal included Lennar paying 50% of the purchase price with its own stock, but Lennar CEO Stuart Miller said Friday that the company elected to purchase WCI with all cash.

Why the change? Miller said there are various reasons, including Lennar’s belief that their stock has upside potential based on the future of the housing market.

“We are very excited to complete the acquisition of this outstanding company. We'd like to extend a warm welcome to the WCI associates who will be joining the Lennar family,” Miller said.

“Prior to closing, we elected to pay the purchase price in all cash as opposed to using 50% stock. We view this decision as equivalent to a $321 million stock repurchase and chose this structure for various strategic reasons,” Miller said.

“First, while the use of cash slightly increases our current leverage, the combination of our carefully managed 7-10% target growth rate, soft pivot land strategy and strong profitability and operating cash flow will continue to fortify our balance sheet and position us to end fiscal 2017 with similar leverage to our fiscal 2016 year end,” Miller said.

Miller added that using cash instead of stock for the purchase of “existing, open for business, established high-margin communities with proven sales,” counterbalances the need for Lennar to purchase new land at retail prices when it plans to grow in the markets WCI was already in.

“We continue to believe that the housing market remains strong and will continue to gradually improve for the foreseeable future,” Miller continued. “And finally, we believe our stock is undervalued given our strong core business and the maturity of our ancillary businesses.”

Richard Beckwitt, president of Lennar, added that the company believes the deal is beneficial for all sides.

“Through our extensive due diligence process, we have identified many areas where we believe significant synergies will be realized, and we anticipate a very smooth transition for current WCI homebuyers,” Beckwitt said. “We are looking forward to working with the talented associates from WCI to enhance our homebuilding operations and ancillary businesses to maximize the opportunities from our combined leading market position in Florida.”

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