Berkshire Hathaway agreed on Sunday to buy Taylor Morrison Home Corp. in an all-cash deal worth about $6.8 billion, making it Greg Abel’s first major purchase since taking over as chief executive after Warren Buffett retired last year. The offer of $72.50 per common share values Taylor Morrison at a 24% premium to its latest closing price on Friday.
The deal gives Berkshire one of the largest U.S. homebuilders and community developers, with more than 350 communities across 12 states, and it also folds in financial services tied to the business, including home loans, titles, escrow and insurance. Berkshire said Taylor Morrison’s existing management team, including Chief Executive Sheryl Palmer, will stay in place, and Abel said the company expects to bring its site-built homebuilding operations together over time into a combined platform.
For Berkshire, the purchase is the largest since it bought Occidental Petroleum Corp.’s petrochemical business in January, and it comes with a huge cash cushion behind it: Berkshire’s pile reached $397 billion at the end of the first quarter. Taylor Morrison shares rose 22% to $71.64 at 10:00 a.m. in New York on Monday, while Berkshire’s Class B shares fell 0.5%.
Palmer called the company’s 13 years as a public company a stretch of strategic growth, built on expanding its geographic footprint and integrating acquisitions with discipline. She also said Berkshire Hathaway’s long-term orientation fits the multi-year investment cycle of homebuilding, a view that helps explain why the market saw the deal as more than a simple financial transaction.
That reading is complicated by the backdrop. Homebuilder stocks have lagged, mortgage rates have climbed to the highest since August, and new residential construction fell 2.8% in April, while starts of single-family homes dropped 9%, the most since August. In that setting, Berkshire’s move looks like a vote of confidence in the real estate market even as the business cycle sends a less reassuring signal.
The deal is expected to close in the second half of this year. What remains unclear is how quickly Berkshire will win the approvals needed to finish the transaction and begin folding Taylor Morrison into a wider homebuilding platform that already includes Clayton Homes and a stake in Lennar Corp.
