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Hovnanian Enterprises Inc. Message Board

  • blue_man_runs blue_man_runs Oct 20, 2012 7:46 PM Flag

    why no mergers among homebuilders

    If conditions are improving so much, why no mergers and acquisitions?

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    • The home builders have very large tax loss allwances from past years losses that the IRS does not allow a company to use in a change of owndership. HOV's primary asset is this tax allowance potential, so for this reason HOV would never be taken over. They could do some sort of partnership though that might allow them to benefit from this potential asset faster. They need profits in order for it to be of any value.

    • There is no advantage to mergers. Homebuilding is about location location location. You find some good land with a good location and then you build something nice on it. Buying another company at a multiple of the price of their land holdings is a bad strategy compared to just going out and buying some land for the price of the land. There have been a couple large mergers over time. PHM/CTX in 2009 and PHM merged with another large homebuilder back in 2000 or 2001. I remember reading the material on that 2000 merger, and at the time the co's were trading around 1.1 times equity. That is why i'm very suspicious of these builders trading at 2.5-3 times equity currently.

 
HOV
4.11+0.07(+1.73%)Dec 19 4:08 PMEST

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