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Starwood Capital ups its offer for Forestar as battle with D.R. Horton intensifies

Each company wants to buy Forestar, but who will win?

There’s a battle brewing between two real estate titans as Starwood Capital Group and D.R. Horton are both angling to acquire Forestar Group, a residential and mixed-use real estate developer.

Last month, Forestar and Starwood announced that the companies reached a merger agreement, which would see Starwood acquire all of Forestar’s outstanding shares for $14.25 per share in cash.

The total purchase price would be approximately $605 million.

But, D.R. Horton attempted to swoop in with a superior offer. After the details of the Forestar-Starwood merger were announced, the homebuilder announced that it was submitting a proposal to acquire 75% of Forestar’s outstanding shares.

The difference? D.R. Horton was offering $16.25 per share, two dollars more per share than Starwood was offering.

“We believe that D.R. Horton is uniquely positioned to make Forestar the country’s leading residential land development company,” Donald Horton, D.R. Horton’s chairman of the board, said at the time. “Together, we can grow Forestar into a much more significant and valuable company for all of its stockholders.”

D.R. Horton’s offer would total somewhere in the neighborhood of $520 million.

At the time, Forestar acknowledged that it received D.R. Horton’s proposal, but said that its board continued to recommend that Forestar’s stockholders vote to accept the Starwood merger agreement.

But Thursday, Starwood upped the ante by raising its offer for Forestar.

Forestar announced Thursday that Starwood is now offering $15.50 for each of its outstanding shares, which would raise the total purchase price from $605 million to approximately $658 million.

The two companies amended their merger agreement to reflect the increased offer, but Forestar said that its board is considering D.R. Horton’s offer as well.

“Forestar’s board of directors has determined that the unsolicited, nonbinding proposal from D.R. Horton continues to be a proposal that could reasonably be expected to lead to a ‘Superior Proposal,’ as defined in Forestar’s amended merger agreement with Starwood,” Forestar said in a release.

Forestar said that its board is not taking any action related to either offer beyond considering each offer’s merits.

“Forestar’s board of directors is not modifying, withdrawing, amending or qualifying its recommendation in favor of the Starwood merger agreement and the merger contemplated thereby, or proposing to do so, and is not making any recommendation with respect to the D.R. Horton proposal,” the company said.

D.R. Horton, on the other hand, appears unwilling to acquiesce to Starwood and its increased offer.

In a separate announcement, D.R. Horton said Thursday that it still believes its offer is superior and suggests that a partnership with Forestar will allow Forestar to grow into a “leading publicly traded national land developer.”

In a statement, Donald Horton, D.R. Horton’s chairman of the board, said that the deal would present a “significant growth opportunity” for both companies.

“We are confident that our proposal is superior to the amended agreement with Starwood and remain fully committed to closing a Forestar transaction in the best interests of both companies’ shareholders,” Horton said.

“We have completed our due diligence and have submitted a fully negotiated Merger Agreement, Master Supply Agreement and Stockholder Agreement to the Forestar Board of Directors,” Horton continued. “We urge the Forestar Board to formally declare our proposal to be a ‘Superior Proposal,’ and to proceed to a definitive agreement with D.R. Horton and postpone the shareholder meeting scheduled for July 7, 2017.”

In its release, Forestar cautioned that there is no assurance that either deal will be completed.

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