No Weyerhauser Out? Company Near Deal To Spin WRECO To Tri Pointe Homes In Reverse Morris Trust

Earlier this summer, Weyerhauser (WY) announced that it was exploring ‘strategic alternatives’ for Weyerhauser Real Estate Company (WRECO), its homebuilder unit. Those options included including ‘continuing to hold and operate WRECO, or a merger, sale or spin-off of the business.’ The unit ranks in the Top 20 homebuilders and sold 1,099 homes in H1 2013.

The exploration of strategic alternatives has wound to a close, and it appears that the unit will end up being sold to TRI Pointe Homes (TPH) for ~$2.7b. While TRI Pointe is a much smaller company, it has strong backing from Starwood Capital, whose chief, Barry Sternlicht, is TRI Pointe’s Chairman. According to ISI Group analyst Stephen East, ‘the price under consideration well exceeds the Weyerhaeuser unit’s book value of more than $1.7 billion’, however, the price is in the middle of analyst’s expectations of $2.3-$2.9b.

The sale allows Weyerhauser to cash in on the housing recovery while also sharpening its focus on its primary business, timber. The company expanded its timber holdings earlier this year with a purchase of 645K acres of forestland in the Pacific Northwest from Brookfield Asset Management (BAM).

Due to tax considerations, the company has indicated that it would like to structure any transaction as a ‘Reverse Morris Trust’, which would involve a spinoff that is then merged into another entity. The final details will not be released until a sale is finalized though.

Disclosure: Author holds no position in any stock mentioned.