Lennar's Offer for WCI May Have Only Set a Floor

(Bloomberg) -- Florida real estate developer WCI Communities may be turning into a hot property itself.  

The company announced on Thursday that it's agreed to sell itself to Lennar for about $809 million including debt. It's not terribly surprising that a buyer is swooping in for WCI, says Bloomberg Intelligence analyst Drew Reading. With its high-end residential towers and housing developments, WCI has a strong presence in the Southeast and more specifically in coastal Florida, markets that have been benefiting from job growth and a burgeoning population of retiring baby boomers. What was a bit surprising was some of the circumstances around the agreement with Lennar.  

Lennar's Offer for WCI May Have Only Set a Floor

There was no slide-deck presentation accompanying the deal announcement and no subsequent conference call with executives -- two things that have become almost a given with any takeover of size. The CEO of the target company, Keith Bass, said Lennar's $23.50-a-share bid represents "immediate and attractive value," but the company's statement also makes clear that it's on the lookout for better offers. The agreement includes a 35-day go-shop period during which WCI can actively solicit other suitors -- a fact that the company reminds investors of four times in the release.

For its part, Lennar already seems to be preparing for the possibility of competition. Its bid is currently comprised of  $11.75-a-share in cash and then another $11.75 in stock, but the homebuilder reserves the right to change its mind and offer all cash. In other words, Lennar can make its offer more attractive to shareholders if it's pressed to do so. Investors are gearing up for a bidding war as well; as of mid-morning on Thursday, shares of WCI were trading above Lennar's offer.

Lennar's Offer for WCI May Have Only Set a Floor

Lennar is offering a 37 percent premium to WCI's closing price on Wednesday, but the company could arguably command a bigger bump given its focus on high-end properties. WCI's average selling price in the year ended June 30 was $444,000, compared to $362,000 at Lennar in the most recent quarter. And yet, Lennar's offer amounts to just over 1 times WCI's projected revenue in 2017, versus its own multiple of about 1.2 times.

So who else might be interested? Lennar is already a big operator in Florida so it's pursuing WCI as a way to bulk up its offerings there and add a more upscale brand that it could potentially expand across the country. But there are other homebuilders that lack a strong presence in WCI's home market and could look to capitalize on the company's foothold there. Florida is one of the remaining weak spots for developer TRI Pointe Group, which acquired Weyerhaeuser's homebuilding business in 2014, Bloomberg Intelligence's Reading said. Toll Brothers is also looking to expand more in the state and has experience with the kind of high-rise luxury development that WCI does.

While it's always nice to get a little bit more, WCI shareholders have to be decently pleased with Lennar's offer. The stock had slumped about 29 percent in the 12 months leading up to the deal announcement amid choppy earnings and analysts were expecting the shares to only recover to about $21 a share on their own.

Be that as it may, it's likely this offer won't be the last. Bidding wars aren't just for home buyers. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net.