Weyerhaeuser Unloading Homebuilder Unit to TRI Pointe Merging in $2.7 Billion Deal

Andrew Klips |

Weyerhaeuser Company (WY) has reportedly been looking to sell its homebuilder and real estate development business, known as WRECO, and it has finally struck a deal to do so, leaving the company to focus on its core competency as a timber manufacturer. On Monday, the Federal Way, a Washington-based company said that it has agreed to terms with California homebuilder TRI Pointe Homes, Inc. (TPH) to combine WRECO with TRI Pointe in a transaction valued at $2.7 billion.

WRECO is not a top homebuilder in the U.S., selling only approximately 2,300 units in 2012, but it does have a substantial property portfolio consisting of about 27,000 lots, mostly in California. Combining assets with TRI Pointe will make the new company one of the largest homebuilders in the U.S. as it brings five brands, including Pardee Homes in California and Trendmaker Homes in Texas under its umbrella.

To make the deal happen, Weyerhaeuser will either spin-off or split-off WRECO and then merge the new company with a subsidiary of TRI Pointe, with WRECO surviving the merger and becoming a wholly owned subsidiary of TRI Pointe.  Weyerhaeuser shareholders will receive 80.5 percent of the merged company with TRI Pointe shareholders getting the balance.

The structure of the deal is called a Reverse Morris Trust transaction, a tax-efficient maneuver for a larger company to divest a unit and merge with a smaller company with the smaller firm then running the combined business.

The deal is expected to close in the second quarter of 2014.

TRI Pointe is controlled by Starwood Capital Group, which is controlled by real estate mogul Barry Sternlict.  Sternlict will remain seated as chairman of the TRI Pointe board after the transaction.  The board will be expanded from seven to nine directors with Weyerhaeuser appointing four of them.  TRI Pointe’s existing management will run the new merged company.

Per the terms of the agreement, Weyerhaeuser will also receive a cash payment of $700 million.

The combined company will be a strong standalone homebuilder, and the separation of our homebuilding division allows us to focus on driving performance in our forest products businesses to deliver further value to our shareholders," said Doyle Simons, Weyerhaeuser president and chief executive officer, in a statement this morning.

Doug Bauer, TRI Pointe chief executive officer, said in a separate statement, “Our mission from day one has been to be the next-generation homebuilder, and this transaction uniquely positions us to build on our established momentum, expand our footprint and capitalize on new growth opportunities.”

TRI Pointe went public in January; opening trading around $19.50 per share, but sunk to lows of $13.43 in October.  Since reports surfaced in mid-October that a deal could be coming, shares have rebounded, including trading today around $16.50 at noon Eastern after running as high as $17.80.  Shares of WY are higher by only about half a percent in Monday action, but are up about 12.5 percent in 2013 through Friday’s close.

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Symbol Name Price Change % Volume
HEIFF H2O Innovation Inc n/a n/a n/a 0
TPH TRI Pointe Group Inc. 12.35 -0.16 -1.28 573,170
WY Weyerhaeuser Company 31.38 -0.12 -0.40 1,513,463


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