Forestar officially spurns Starwood Capital, agrees to sell to D.R. Horton for $560 million


The bidding war between Starwood Capital Group and D.R. Horton over which real estate giant would buy residential and mixed-use real estate developer Forestar Group is now over.

And D.R. Horton won.

It all started a few weeks ago when Starwood and Forestar announced that the two companies reached an agreement under which Starwood would acquire Forestar for $14.25 per share.

But, D.R. Horton attempted to swoop in with a superior offer, announcing that it was submitting a proposal to acquire 75% of Forestar’s outstanding shares for $16.25 per share, two dollars more per share than Starwood was offering.

That led to both Starwood and D.R. Horton increasing their offers.

D.R. Horton increased its bid from $16.25 per share to $17.75 per share, which would increase the purchase price for 75% of Forestar from $520 million to $568 million, while Starwood increased its offer incrementally from $14.25 per share to $15.50 and then to $16 per share.

But after D.R. Horton pushed its offer to $17.75, Forestar’s board said that it determined the homebuilder’s offer to be a “Superior Proposal” and planned to accept it instead of Starwood’s offer.

At the time, Forestar said that it planned to give Starwood the opportunity to counter back, but Forestar said Thursday that Starwood elected not to alter its offer, which means that the D.R. Horton deal is now official.

All told, D.R. Horton will buy 75% of the Forestar’s shares for $17.75 per share, for a total purchase price of approximately $560 million.

“Forestar is pleased to announce this transformational agreement with D.R. Horton, America’s largest homebuilder. This transaction is expected to create additional value for shareholders of both companies, and to enable Forestar to become a leading national land developer,” Phillip Weber, CEO of Forestar said.

“Aligning Forestar’s resources with D.R. Horton’s strong demand for finished lots, extensive network of markets, land acquisition and development professionals and land seller and business relationships is expected to accelerate our growth and enhance our operating efficiency and returns,” Weber continued.

Weber also noted that there are other advantages to only selling 75% of the company to D.R. Horton instead of 100% of the company to Starwood, namely that the company will remain public.

“By remaining a public company, Forestar expects to maintain access to capital to support the increasing scale of the business,” Weber said.

But choosing the D.R. Horton offer wasn’t a simple decision, or an inexpensive one, for Forestar.

According to the company, per the terms of its previously signed agreement with Starwood, Forestar paid $20 million to Starwood as a termination fee.

For D.R. Horton, the company views the deal as a “unique platform” to grow its business.

Forestar currently owns interests in 49 residential and mixed-use projects comprised of approximately 4,400 acres of real estate located in 10 states.

And that land is key to the deal, D.R. Horton said.

“We are pleased to have reached this agreement with Forestar,” said Donald Horton, chairman of the board of D.R. Horton.

“The acquisition of a majority ownership position in Forestar advances D.R. Horton’s stated strategy by increasing our access to high-quality optioned land and lot positions and creates strategic alignment between these companies,” Horton continued.

“Forestar’s shareholders meaningfully benefit by receiving a superior and immediate cash premium for their shares, while also having the opportunity to retain a substantial stake in a company we are committed to growing into a leading residential land development platform with national scale,” Horton concluded.

D.R. Horton said that it is on track to build 45,000 new homes in 2017 and having a supply of land is a prerequisite to its continued growth.

“D.R. Horton is committed to owning no more than a two- to three-year supply of lots and supplementing its land pipeline through lot purchase agreements with land developers,” the company said.

“This transaction is consistent with its stated long-term strategy of developing strong relationships with land developers across the country and growing the optioned portion of its land and lot position to enhance both operational efficiency and returns,” the company continued. “The strategic agreement with Forestar provides D.R. Horton a unique platform to accelerate this strategy.”

Under the terms of the deal, Forestar will operate as a public company under the leadership of Donald Tomnitz, former CEO of D.R. Horton.

Tomnitz will serve as executive chairman, and will lead the company along with members of the current Forestar management team. Forestar’s headquarters will remain in Austin, Texas.

D.R. Horton also said as the controlling shareholder in Forestar, the company plans to to guide the strategic direction of Forestar and grow the company into a “leading national land developer.”

Then, over time, D.R. Horton intends to gradually reduce its ownership position in Forestar and increase the public portion of the company.

The companies say that the deal is expected to close in the fourth calendar quarter of 2017.

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