Shares of U.S. homebuilder MDC Holdings (MDC 18.36%) jumped an incredible 18.2% at the open this morning and are pretty much sticking to that price as the day progresses — still up 18.2% at noon. It’s no huge secret why, either: a Japanese company wants to buy MDC.
Hooray, it’s a buyout!
Japanese homebuilder Sekisui House (SKHSY -0.81%) announced today that it has signed a definitive agreement to buy all outstanding MDC shares for $63 per share, cash, in a deal valued at $4.9 billion in total.
Investors seem pretty confident that this deal will go through, too. At $62.78 currently, MDC shares are trading for just $0.22 below Sekisui’s offer price, suggesting little worry that the deal will not pass regulatory muster.
Sekisui explained the reasoning behind a homebuilder in one country expanding to build beyond its borders: First, it wants to become an international homebuilder, and aims to build 10,000 houses outside of Japan annually by 2025.
Second, the U.S. is a great place to try to do this. There’s big demand for housing here, but a deficit of homes to buy because homeowners are largely caught in golden handcuffs today. With 3% mortgages on their current homes, they’re unwilling to sell if that means buying new housing at more than twice that rate.
That probably means someone is going to have to build a lot of new homes in order to put more supply into the market for new buyers. And Sekisui wants to be that someone.
What happens next
Sekisui and MDC hope to close this buyout in the first half of 2024, shareholders and regulators permitting. Assuming shareholders approve the deal, and regulators permit it to proceed, existing shareholders can expect to be cashed out of their shares and have $63 per current share deposited in their brokerage accounts on the closing date — which remains to be determined.
Investors should be moderately pleased with this result. On the one hand, Sekisui is getting a good deal at 11 times earnings for a stock expected to grow nearly 13% per year over the next five years.
On the other hand, though, at least MDC shareholders will be paid a much better price than PulteGroup or KB Home shareholders are getting currently: about 8.5 times earnings in each case. Seems to me like a win for all parties concerned.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends KB Home. The Motley Fool has a disclosure policy.
