Irvine will apparently become a central hub of operations for Lennar Corp. following its acquisition of locally based CalAtlantic Homes, but consolidation of the homebuilders’ Orange County offices and staff over the next year will likely result in area job cuts.
Lennar announced plans last week to buy CalAtlantic in a $9.3 billion stock, cash and debt deal that will create the largest U.S. homebuilder by annual sales—$17.2 billion—and market equity value—$18.5 billion.
The blockbuster deal, the largest homebuilder merger since the recession, is scheduled to close by the end of next year’s first quarter, Lennar executives said last week.
Lennar was the country’s second-largest homebuilder by sales last year, and CalAtlantic was No. 5. The deal will vault their combined operations past Fort Worth, Texas-based D.R. Horton, which had $13.3 billion in sales over the past year.
The combined operations also have a top-three presence in 24 of the country’s 30 largest homebuilding markets, plus control of more than 243,000 home lots.
The firms sold nearly 500 homes in OC last year, their projects stretching from Brea to Rancho Mission Viejo, and have several developments under way in Irvine.
400 OC Employees
Each company also has a significant corporate presence in OC, in addition to homebuilding operations. They have nearly 400 local workers, excluding the thousands of contractors working on their myriad local developments.
Miami-based Lennar maintains its West Coast base in Aliso Viejo, where it maintains much of its day-to-day operations. The Business Journal estimates it employs about 160 in OC.
The builder announced plans this year to move local operations to Irvine at Great Park Neighborhoods offices owned by affiliate FivePoint Communities Inc. It and related businesses, including a multifamily division, will lease about 90,000 square feet at the recently built, four-building complex, which will also hold chipmaker Broadcom Ltd.’s local operations. It will move from Aliso Viejo to Irvine next year.
The Five Point Gateway complex has additional vacant space that in theory could hold additional staff from CalAtlantic’s operations.
Neither company has issued an official statement about plans to consolidate operations here or at other locations.
CalAtlantic leased about 39,000 square feet at its operations base in the Spectrum area earlier this year, according to regulatory filings. The builder employed about 230 here as of February, according to Business Journal records.
It also maintains an 11,000-square-foot East Coast headquarters in Arlington, Va., where some of its executive team are based.
CalAtlantic was formed in 2015 following the combination of Irvine-based Standard Pacific Homes and Westlake Village-based Ryland Group. The $5.4 billion deal was billed as a merger of equals; that’s not the case this time, as Lennar shareholders will control 74% of the combined company.
Regulatory filings indicated only one Cal- Atlantic executive who’ll hold a position with Lennar after the deal closes: Executive Chairman Scott Stowell, former chief executive of Standard Pacific, who’ll serve on the company’s board.
He and a few other Irvine-based CalAtlantic executives will be paid a little more than $15 million combined if they stay with the company through the completion of the acquisition, according to the filings.
The role of CalAtlantic Chief Executive Larry Nicholson, who works from the company’s East Coast office, hadn’t been disclosed.
Multiple specifics regarding the transaction have yet to be spelled out. A CalAtlantic memo sent to employees last week said the company “will be working on staffing and integration plans with Lennar leadership over the next several months and will communicate specific details to you as this process continues.”
$250M in ‘Synergies’
Cuts appear likely across all operations levels.
Lennar plans “to remove the duplication of two public companies,” said Chief Operating Officer Jon Jaffe, the builder’s top West Coast executive.
Jaffe has been credited by Lennar Chief Executive Stuart Miller for heading many efforts to streamline homebuilding operations and drive down operational costs over the past few years.
In last week’s conference call detailing the deal with CalAtlantic, Jaffe explained the “compelling synergy opportunity” that the acquisition presented Lennar.
Lennar executives think they can shave off $85 million in sales, general and administrative expenses—which can include anything from executive salaries to advertising costs and sales commissions—by streamlining corporate overhead and similar public company-related costs following the acquisition.
Overlapping regional and divisional operations are also being considered for cost-cutting, according to Jaffe’s presentation.
An additional $165 million in direct cost saving could be achieved through the combined companies’ improved competitive purchasing power, Lennar said.
“We know what we’re doing here,” said Jaffe, noting his company’s recent success integrating other homebuilders it acquired, including this past February’s $643 million buy of Florida-based WCI Communities.
Cuts of redundant positions won’t all necessarily come from CalAtlantic, according to Jaffe, who said he’s very familiar with the company’s team.
“I’ve known them well for many, many years,” said Jaffe, who in 2005 worked with Lennar’s then chief financial officer, Emile Haddad, to buy the former El Toro Marine base in Irvine.
The $1 billion deal for the 3,700-acre property was the largest land transaction in OC in recent memory. Haddad now runs Aliso Viejo-based Five Point, which oversees development of the former military base under Great Park Neighborhoods, in addition to other large projects in California.
Lennar is the largest investor in both Five Point and Great Park Neighborhoods, as well as the most active builder on the mega-development.
Standard Pacific came in second in the 2005 bidding for the former base.
Costa Mesa Start
Lennar’s purchase of CalAtlantic will mark the end of the company’s long run—most of it as Standard Pacific—as OC’s largest publicly traded builder. That honor will now go to Irvine-based TRI Pointe Group Inc., the country’s 12th-largest builder by sales last year and whose market value is $2.7 billion.
Standard Pacific was founded more than 50 years ago in Costa Mesa by Ronald Foell and Art Svenden. It moved to Irvine in 2000 and has built more than 50,000 homes over its history.
The company’s experienced more than its share of ups and downs over the past decade. It appeared on the brink of bankruptcy, and perhaps liquidation, following the last recession and housing downturn.
Instead it got a $530 million investment from New York-based hedge fund MatlinPatterson in 2008 in return for a controlling stake in the company; slimmed down local operations and worked to fix its balance sheet; and a few years later emerged as one of the most profitable builders in the country.
Following the 2015 merger with Ryland, MatlinPatterson still had 25.4% voting interest in CalAtlantic. It’s agreed to support the deal, which involves Lennar paying $5.7 billion in cash and stock and assuming $3.6 billion of CalAtlantic debt.
CalAtlantic shareholders would receive 0.885 Lennar shares for each CalAtlantic share, which equals $51.34 a share, or a 27% premium above its stock before the transaction was announced.
CalAtlantic shareholders also have the option to take all or part of their shares in cash at $48.26 a share. Total cash payments would be limited to $1.2 billion, Lennar said.
Lennar’s Stuart Miller and his family trust hold a 41.4% voting interest in the builder and are supporting the deal.
