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The Honolulu Advertiser
Posted at 11:30 a.m., Tuesday, October 23, 2001

Builders Schuler, Horton merge

Advertiser Staff and News Services

In a move that will create the second-largest U.S. home-builder, Mainland home-builder D.R. Horton Inc. agreed today to buy Honolulu-based Schuler Homes Inc. in a cash, stock and debt deal valued at $1.2 billion.

The purchase by the nation's fourth-largest homebuilder is the latest in a string of sales of major Hawai'i companies to global businesses.

Cheap Tickets was sold to New York-based Cendant Corp. in August; Liberty House was sold to Cincinnati-based Federated Department Stores in June; and First Hawaiian Bank's parent was sold to BNP Paribas SA, France's largest bank, in May.

Schuler, co-founded by Hawai'i businessman James K. Schuler, is among the top 15 builders in the country with operations in California, Colorado, Oregon, Washington, Hawai'i, and Arizona. Arlington, Texas-based D.R. Horton operates in 20 states.

Combined with Schuler, the companies said they would have had revenue of more than $6 billion in the 12 months ended in September.

The deal, which needs approval by both companies' shareholders, is expected to close in the next three months.

The purchase of Schuler Homes Inc. adds to a growing list of companies consolidating in the nation's homebuilding industry over the past two years.

Texas-based D.R. Horton said today it will pay $653 million in cash and stock and assume $552 million in debt of Schuler.

The exact value of the stock offer will be based on a 15-day average of D.R. Horton's closing stock price three days before Schuler Homes' stockholder meeting. If the average price is equal to D.R. Horton's closing price of $21.10 yesterday, the transaction would have a value of $653 million in cash and stock.

At this price, D.R. Horton would pay $4.09 in cash and 0.570 D.R. Horton shares for each outstanding share of Schuler, valuing the company at $16.12 a share, a 34 percent premium based on yesterday's closing price of $12.

"The combined companies will be ranked first in market share in nine markets, and will be ranked in the top five in an additional 20 markets," said Donald Horton, chairman of Horton.

The purchase comes as large home builders have been merging to cut costs, raise capital more cheaply and gain advantages in negotiating the purchase of supplies. In the past 20 months, Pulte homebuilding has bought Del Webb Corp. and Lennar Corp. acquired U.S. Home Corp.

D.R. Horton has already bought closely held Houston-based Emerald Builders this year, and its previous largest acquisition was the $670 million purchase of Continental Homes Holding Corp. in 1998.

Earlier this year, a merger between Schuler Homes and California-based Western Pacific Housing was completed, pushing Schuler to among the top 15 builders in the country with operations in California, Colorado, Hawai'i, Washington, Oregon and Arizona.

As combined companies, Schuler and Horton said they expect to realize significant cost savings by increasing volume and purchasing power, eliminating redundant costs associated with maintaining two public companies, expanding mortgage and title services, expanding product offerings and reducing borrowing costs.

D.R. Horton estimates it will be able to save $30 million to $40 million annually from the combination with Schuler.

"D.R. Horton is an ideal merger partner for Schuler Homes," James K. Schuler, co-chairman, president and chief executive officer of Schuler Homes, and Eugene S. Rosenfeld, co-chairman of Schuler said jointly in a statement today. "The merger offers significant potential by combining the strengths and attributes of two premier companies with the same core values and proven track records of profitability."

Founded in 1978, D.R. Horton Inc. operates in 20 states and 38 markets, with a presence in the Midwest, Mid-Atlantic, Southeast, Southwest and Western regions of the United States. The company also provides mortgage financing and title services for home buyers through its subsidiaries CH Mortgage, DRH Title Company, Principal Title, Travis Title Company, Metro Title Company, Century Title Company and Custom Title Company.

Upon the completion of the transaction, Schuler will be added to the board of directors of D.R. Horton. Schuler will become president of the Schuler Homes Region of D.R. Horton and become a senior vice president of D.R. Horton. Rosenfeld will serve as a consultant to the combined companies.

A Bloomberg News report was included in this story.