TRI Pointe Will Tap Weyerhaeuser Value Through Hands On Decentralization

A decentralized philosophy will be among the keys for unlocking the value of six brands that will be brought under TRI Pointe Homes’ roof with the $2 billion-plus acquisition of Weyerhaeuser Company’s home building division.

November 06, 2013

A decentralized philosophy will be among the keys for unlocking the value of six brands that will be brought under TRI Pointe Homes’ roof with the $2 billion-plus acquisition of Weyerhaeuser Company’s home building division.
 
“I don’t think there needs to be a TRI Pointe home across the nation,” said Doug Bauer, CEO of TRI Pointe Homes Inc.
 
The deal announced on Monday and expected to close during second quarter 2014 will push TRI Pointe among the ranks of the country’s top-20 home builders based on annual revenue. The Irvine, Calif., company reported $77.5 million in annual sales for 2012 while Weyerhaeuser Real Estate Company (WRECO) generated $870.4 million in home sales last year. The combination significantly expands TRI Pointe’s markets, which focused on California and Colorado. The Weyerhaeuser portfolio includes Quadrant Homes, which is active in Puget Sound in the Northwest; Winchester Homes, which builds in Richmond, Va., and Washington, D.C.; Pardee Homes, a builder in Southern California and Nevada; Maracay, an Arizona builder; and TrendMaker, a Houston builder.
 
“I’ve been a big believer that regional local marketing and home building firms can create better value because they have great relationships with the land holders, subcontractors, and people,” Bauer said in an interview with Professional Builder. “I’ve been in this business 25 years and I’ve followed from afar the Weyerhaeuser home building model, and we’re blessed to be part of it now. It’s exactly what I think drives the best value.”
 
Another key for success, according to Bauer, is this combination is unlike other mergers and acquisitions deals that typically are followed by eliminating redundancies through closing facilities and laying-off employees. Bauer notes he’s not making any pronouncement trumpeting that this deal will lead to millions of dollars in overhead cost savings.
 
“So no one has to look over their shoulder. The worst thing that happens in a big merger is everyone comes to work everyday, and they all wonder if they have a job,” Bauer said. “No one puts a metric to that, but (that anxiety) really lowers productivity. One of the beauties of why this thing is hitting the ground running, not only today [but] when we close, too, is that everybody is not looking over their shoulder. They are out there doing what they are doing today, and they’ll be doing that tomorrow.”
 
The combination will add about 27,000 lots to TRI Pointe’s land inventory, 15,000 of which are in the hot-building and scarce affordable land markets of California. Bauer adds that the combination will be accretive to TRI Pointe’s earnings by 2014 and 2015. The deal is a Reverse Morris Trust transaction that is expected to be tax-free for both companies and their shareholders. The forestry products conglomerate would receive $700 million cash, and Weyerhaeuser shareholders get 130 million shares of TRI Pointe stock, or 80.5 percent of the combined company, which is valued at approximately $2.15 billion based on the Nov. 5 closing price. TRI Pointe shareholders will own 19.5 percent of the company.
 
The combined company’s board of directors will be expanded from seven to nine directors with Weyerhaeuser selecting four directors and TRI Pointe appointing five. Barry S. Sternlicht, chairman of Starwood Capital Group LLC and TRI Pointe’s financial backer, will continue as chairman of TRI Pointe’s board. Bauer will retain the CEO post and TRI Pointe senior managers Tom Mitchell and Mike Grubbs will continue serving as COO and CFO, respectively. TRI Pointe’s headquarters will remain in Irvine.
 
The deal will yield more liquidity for TRI Pointe shareholders with more than 160 million shares of outstanding common stock trading on the market. Bauer believes that TRI Pointe shares have been undervalued recently, so Weyerhaeuser shareholders could see a decent upside with share price.
 
“No one can predict things like this,” Bauer said. “A lot of life is being at the right place at the right time and a little bit of luck in timing. We formed the company with Barry in 2010 and then went public. We’ve been looking at a lot of ways for growing both organically and through acquisition, and it just so happened that this opportunity fell in our lap.”

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