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Updated from 3:22 p.m. EDT

Pulte Homes

(PHM) - Get Free Report

said Wednesday it will take over



in a deal worth $1.3 billion that will create the nation's largest homebuilder.

Under the terms of the agreement, Pulte, of Bloomfield Hills, Mich., will exchange 0.975 shares for each share of Centex. That ratio values Dallas-based Centex at $10.50 a share. Including $1.8 billion of debt, the transaction is worth $3.1 billion.

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Centex closed Tuesday at $7.62, and the stock rose 18.9% to $9.06. The shares have a 52-week range of $4.91 to $26.09. Pulte fell 10.5% to $9.64.

The two companies would have had revenue of $11.6 billion on a combined basis in 2008. After the pact closes, Pulte shareholders will own about 68% of the combined company, and Centex stockholders will have the rest.

Pulte and Centex expect to complete the transaction in the third quarter.

The merger could potentially set off a wave of consolidation in the sector, which has been one of the most battered areas of the market over the past couple of years. Sales of new and existing homes have been weak for months and months, though recently some

glimmers of hope

have emerged in the data.

D.R. Horton

(DHI) - Get Free Report

, currently the top homebuilder in the U.S., lost 4% to $9.79. Elsewhere,


(LEN) - Get Free Report

was up 5.1% at $7.49, and

Toll Brothers

(TOL) - Get Free Report

was lower by 3.2% at $17.42.

Beazer Homes

(BZH) - Get Free Report

gained 14.8% to $1.01, and


(HOV) - Get Free Report

added 5.2% to $1.62. Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research, click here now!