Forestar Group (FOR 14.20) is a residential land development company that agreed in April to be acquired for $14.25 per share in cash by Starwood Capital. Homebuilder D.R. Horton (DRI 33.79), however, is aiming to disrupt that deal with an offer of its own for Forestar Group that is above and beyond the one from Starwood Capital.
Earlier this morning, D.R. Horton submitted a proposal to acquire 75% of Forestar for $16.25 per share in cash, which is a 14% premium over the Starwood offer. Alternatively, Forestar shareholders will have the option to elect to receive a share of stock in the surviving entity for each share of common stock they own.
The transaction would reportedly be effected through a merger of a newly formed, wholly owned subsidiary of D.R. Horton with Forestar. In short, D.R. Horton wants Forestar to remain a public company so that it has continued access to capital to increase the scale of its business.
Forestar, it was noted, would be led by Donald Tomnitz, who would be executive chairman. Mr. Tomnitz served as CEO of D.R. Horton for 15 years.
The strategic benefit of this deal for D.R. Horton is that it enables the company to expand its relationship with land developers and to grow the optioned portion of its land and lot position to enhance operational efficiency and returns. D.R. Horton believes it can make Forestar the country's leading residential land development company, thereby making it a more valuable company for its shareholders.
D.R. Horton will have a call at 8:30 a.m. ET today to discuss further the aforementioned proposal. The folks at Starwood Capital are sure to be listening in and will now need to consider if they want to sweeten their own offer for Forestar.
Shares of FOR are trading at $16.05 in pre-market action. That is slightly below the D.R. Horton offer price, which would suggest that investors so far are not expecting a better merger price than the one D.R. Horton is currently offering.