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D.R. Horton completes acquisition of real estate developer Forestar Group

Majority of Forestar shareholders choose to cash out

The saga of which company would buy residential and mixed-use real estate developer Forestar Group is now done and dusted.

After a tug-of-war between Starwood Capital Group and D.R. Horton over which real estate giant would buy the real estate developer, D.R. Horton eventually won out, thanks to a superior offer that significantly topped Starwood’s bid for Forestar.

And now, the merger of D.R. Horton and Forestar is complete, as the homebuilder announced Friday morning that the deal is done.

It all began back in June, when Starwood and Forestar announced that the two companies reached an agreement that would see Starwood acquire Forestar for $14.25 per share.

But, D.R. Horton attempted to swoop in with a superior offer, announcing that it was submitting a proposal to acquire 75% of Forestar’s outstanding shares for $16.25 per share, two dollars more per share than Starwood was offering.

Then bidding war really kicked off.

D.R. Horton increased its bid from $16.25 per share to $17.75 per share, which would have increased the purchase price for 75% of Forestar from $520 million to $568 million, while Starwood increased its offer incrementally from $14.25 per share to $15.50 and then to $16 per share.

But after D.R. Horton pushed its offer to $17.75, Forestar’s board said that it determined the homebuilder’s offer to be a “Superior Proposal” and planned to accept it instead of Starwood’s offer.

Eventually, Starwood bowed out and Forestar signed the deal with D.R. Horton, but Starwood didn’t leave empty-handed. Per the terms of its previously signed agreement, Forestar paid $20 million to Starwood as a termination fee for the deal.

With the negotiations now firmly in the past, D.R. Horton and Forestar announced that the merger of the two companies is done.

For D.R. Horton, the company views the deal as a “unique platform” to grow its homebuilding business.

Forestar currently owns interests in 49 residential and mixed-use projects comprised of approximately 4,400 acres of real estate located in 10 states.

And that land is key to the deal, D.R. Horton said.

Also, because D.R. Horton is acquiring 75% of Forestar, the homebuilder now has significant influence of the future of the real estate developer. Forestar will remain a public company, with D.R. Horton as its majority shareholder.

“The transaction establishes a strategic relationship between Forestar and D.R. Horton for the supply of developed lots, as an extension of D.R. Horton’s strategy of increasing its optioned land and lot position to enhance operational efficiency and returns,” the companies said in a release. “D.R. Horton’s position as Forestar’s controlling stockholder will also allow D.R. Horton to guide Forestar’s strategic direction, growth and operational execution to increase the future value potential of Forestar.”

As part of the deal, each of the members of Forestar’s board of directors resigned, save for one, M. Ashton Hudson. Forestar’s board of directors now consists of five directors, Hudson, and four new directors: Donald Tomnitz, former CEO of D.R. Horton, who will serve as executive chairman of Forestar; Samuel Fuller; G.F. Ringler, III; and Donald Spitzer.

Another interesting facet of the deal is that the agreement allowed Forestar’s existing shareholders to either receive $17.75 or one new share of Forestar stock for each share they owned previously.

And according to the companies, more than 84% of Forestar’s shareholders voted to receive cash for their shares as opposed to new shares in Forestar.

Due to some complicated math involving the proration of certain parts of the deal, approximately 89.03% of the shares held by the cash-voting stockholders will be exchanged for cash – meaning that D.R. Horton will pay out approximately $558 million to Forestar’s existing shareholders.

Prior to Starwood’s initial bid for Forestar, the company’s stock was trading in the $14 range.

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