Homebuilding company D.R. Horton, Inc. (DHI) is merging with Vidler Water Resources (VWTR). Under the merger agreement, DHI will acquire Vidler in an all-cash transaction for $15.75 per share. The acquisition price represents a 39% premium over Vidler’s book value of equity.
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Vidler owns premium water rights and other water-related assets in southwestern U.S. markets. The company has expertise in accessing, developing, and deriving value from water assets while also navigating the regulatory landscape.
Deal Terms
Post-closing, Vidler will operate as a separate division within DHI. The transaction, with an approximate equity value of $291 million, is anticipated to close in Q2 of this year.
Under the agreement, DHI will begin a tender offer for all outstanding Vidler shares via its owned acquisition subsidiary.
Deal Under Investigation
In a major development post announcement from DHI, law firm Wohl & Fruchter LLP announced it is investigating if Vidler’s directors approved the transaction in the best interests of the company’s shareholders.
This is because the transaction price of $15.75 is lower than the $16.27 closing price of the stock as of the day before the deal announcement.
Wall Street’s Take
J.P. Morgan analyst Michael Rehaul has reiterated a Buy rating on the stock while decreasing the price target to $82.5 from $100. Amid rising interest rates, the analyst does not see a significant rebound in homebuilding names.
Overall, the Street has a Moderate Buy consensus rating on the stock based on seven Buys and four Holds. The average D.R. Horton price target of $104.39 implies upside potential of about 44%.
Closing Note
As a result of these developments, DHI shares fell 2.15% on Thursday. Vidler’s portfolio will help DHI mitigate its need for water for development in key southwestern U.S. markets. On the other hand, the investigation of the transaction by Wohl & Fruchter has raised key areas of concern for investors in the company.
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