Forestar officially drops Starwood for D.R. Horton

Dive Brief:

Forestar Group accepted builder D.R. Horton’s stock purchase offer and will enter into a $560 million merger deal by the end of 2017, MarketWatch reported.
The land developer’s shares dropped 3.2% Thursday following the company's decision to back out of its previous merger agreement with Starwood Capital Group. D.R. Horton will purchase a 75% stake in the company for $17.75 a share.
D.R. Horton's deal allows Forestar to remain a publicly traded company, something Starwood's deal precluded.

Dive Insight:

Forestar had initially agreed to merge with Starwood. The deal, announced in April, would see Starwood buy all outstanding shares in the company for $14.25 per share.

In early June, however, D.R. Horton, the country's largest homebuilder, raised Starwood’s offer with a $520 million bid to buy just 75% of Forestar's outstanding shares for $16.25 per share and let the company remain publicly traded.

Later in the month, the builder sweetened the deal by increasing the price per share to $17.75 after Starwood raised the price per share on its offer to $15.50, and then again to $16, Builder reported. Still, Forestar officials called D.R. Horton’s bid “a superior proposal” to Starwood’s.

The merger marks the latest in a string of homebuilder-developer partnerships and acquisitions that see builders looking for lower-risk access to land as well as to new markets, including D.R. Horton's purchase of southeast builder Wilson Parker Homes, and Lennar's acquisition of WCI.

Forestar, which has 50 residential and mixed-use developments in 10 U.S. states, deals D.R. Horton a valuable upper hand in land availability amid a lot and labor shortage that is fueling price growth and increased competition for buildable space. A National Association of Home Builders/Wells Fargo Housing Market Index survey found that seven in 10 of builders think lot availability will be a challenge in the coming year, following closely behind access to labor.

More builders post-recession are seeking access to land through partnerships that afford less risk than owning the property outright. In D.R. Horton’s case, more land is also fuel for continued growth. The builder closed 41,652 homes in 2016, a 13.4% jump from 2015, and is forecast to close 45,000 homes this fiscal year, after reporting double-digit increases in revenues, net income, net sales orders and closings in Q2. The Dallas Business Journal reported that D.R. Horton wants to own between just two and three years’ worth of land as a way to help it be more nimble in a highly cyclical industry.