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Forestar preparing to spurn Starwood Capital after D.R. Horton improves its offer

Both companies up acquisition offers, but Forestar now favors homebuilder

Thanks to a bidding war between two real estate giants, Forestar Group, a residential and mixed-use real estate developer, and its shareholders find themselves squarely in the catbird’s seat.

As recently as one day ago, Forestar said that it still planned to sell itself to Starwood Capital Group for $15.50 per share (or approximately $658 million), despite D.R. Horton attempting to swoop in and buy 75% of the company for a higher price, $16.25 per share (or approximately $520 million).

That came after Starwood increased its initial offer for Forestar from $14.25 per share to $15.50 per share as it tried to fend off D.R. Horton’s unsolicited bid for control of the company.

But things can change quite a bit in 24 hours.

On Thursday, Forestar announced publicly that its board was considering both companies’ offers, and may determine that D.R. Horton’s bid is superior.

Now, it appears that Forestar’s public negotiation proved successful, as the company announced Friday morning that both companies increased their offers for the company, with D.R. Horton increasing its bid enough that Forestar now plans to spurn Starwood’s offer and sell to D.R. Horton.

According to both Forestar and D.R. Horton, the homebuilder increased its bid from $16.25 per share to $17.75 per share, which would increase the purchase price for 75% of Forestar from $520 million to $568 million.

In a release, Forestar said Friday that its board unanimously determined that D.R. Horton submitted a “Superior Proposal,” which it now plans to accept instead of Starwood’s offer.

Forestar said that it notified Starwood on Friday about D.R. Horton’s increased offer and its intentions to terminate its merger agreement with Starwood and enter into a new acquisition agreement with D.R. Horton.

In a release of its own, D.R. Horton said that the company is very pleased with Forestar’s decision.

“We are pleased that the Forestar Board has determined that our revised offer constitutes a ‘Superior Proposal,’ and we look forward to completing this transaction as quickly as possible in the best interests of the Forestar and D.R. Horton shareholders,” Donald Horton, D.R. Horton’s chairman of the board, said.

“This transaction advances D.R. Horton’s strategy of increasing our access to high-quality optioned land and lot positions and will allow us to significantly accelerate Forestar’s growth into a leading national land developer,” Horton continued.

“Forestar’s shareholders will receive superior and immediate cash value, along with the opportunity to participate in significant value creation over the long term,” Horton added. “This strategic alignment will enable both companies to enhance their operational efficiency and returns.”

But things aren’t done and dusted quite yet.

Forestar said that Starwood also increased its offer for the company from $15.50 per share to $16, but the company currently prefers the offer from D.R. Horton.

But Forestar said in its release that it still plans to discuss and negotiate with Starwood in good faith, if Starwood so chooses, over “adjustments” to its merger agreement with Starwood that could lead to the company not accepting the D.R. Horton offer after all.

Those “adjustments” would likely be Starwood increasing its offer again, if the company wants to.

Starwood has already increased its offer from $14.25 per share to $15.50 and now to $16 per share, and it appears that Forestar is going to try to see if Starwood is willing to up the ante again.

Forestar said that it will negotiate with Starwood until the end of the day on June 28 before determining which offer to move forward with.

All of this back and forth has been a boon for Forestar’s shareholders as the company’s stock has risen substantially throughout the entire negotiation process.

Back on June 2, Forestar closed at $14.20 per share. In the wake of the initial offers from Starwood and D.R. Horton, the company’s stock shot up to $16 per share on June 5.

And the stock has been steadily rising since then too. As of 12:06 pm Eastern on Friday, June 23, the company’s stock was up more than $1 for the day, climbing to $17.65.

Back in November, the company’s stock was trading at less than $11 per share.

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