The offer of $72.50 per common share represents a 24% premium to the home builder’s latest closing price on Friday. The deal is expected to close in the second half of this year.
“We are excited to welcome Taylor Morrison into Berkshire’s portfolio,” Greg Abel, chief executive officer of Berkshire Hathaway, said in a statement Sunday. “Over time, we expect to unify our site-built homebuilding operations into a combined platform enabling us to deliver the dream of homeownership to more Americans.”
This is the first multibillion-dollar acquisition under Abel, who took over Berkshire Hathaway earlier this year after legendary investor Warren Buffett retired last year. The Omaha, Nebraska-based firm was sitting on a cash pile that reached $397 billion at the end of the first quarter, its highest level ever.
While investors have been satisfied with Abel’s command over the sprawling conglomerate, some have been hoping that a deal could support Berkshire’s shares, which has fallen 5.6% so far this year. The S&P 500 index has gained 10.7% in the same period.
Taylor Morrison is one of the largest community developers and homebuilders in the US and also offers financial services like home loans, titles, escrow and insurance to consumers, according to the statement. The Scottsdale, Arizona-based firm has more than 350 communities across 12 states.
The existing Taylor Morrison management team, including Chief Executive Officer Sheryl Palmer, will continue to lead the company, according to the statement.
This isn’t Berkshire’s first investment in the home-building business. The company also owns Clayton Homes, and owns shares in Lennar Corp. The deal comes at a time when homebuilding in the US has seen declines. New residential construction decreased 2.8% in April, according to government figures released earlier this month. Starts of single-family homes also declined 9%, which was the most since August.
Christopher Davis, a partner at Hudson Value Partners, said Abel’s comments about unifying Berkshire’s homebuilding operations over time are “a notable departure” from Berkshire’s trademark strategy of letting acquisitions run independently.
“Investors will welcome that evolution in approach,” Davis said.
Taylor Morrison, which is currently a publicly-traded firm, will become a private company upon completion of the deal.
“Over the last 13 years as a public company, we built a track record of strategic growth—expanding our geographic footprint, integrating acquisitions with discipline, and deepening our competitive strengths,” Taylor Morrison’s Palmer said in Sunday’s statement. “Berkshire Hathaway’s long-term orientation is uniquely well-suited to the multi-year investment cycle of homebuilding.”
Goldman Sachs Group Inc. and Moelis & Co. are serving as financial advisers, Simpson Thacher & Bartlett LLP is serving as legal adviser, and Mayer Brown LLP is serving as counsel to Taylor Morrison.