NEW YORK – Tri Pointe Homes Inc , a homebuilder backed by Barry Sternlicht's Starwood Capital Group LLC, is in advanced talks to buy Weyerhaeuser Co's homebuilding division for about $2.7 billion, according to people familiar with the matter.
Weyerhaeuser, which announced in June it was reviewing strategic options for the homebuilding and real estate development unit, is trying to finalize a sale to Tri Pointe as soon as in the next two weeks, the people said on Monday.
Under the proposed terms of a deal, the two companies are using a structure known as Reverse Morris Trust - a transaction that allows a parent company to sell its subsidiary in a tax-efficient manner, the people said.
Discussions with Tri Pointe are still continuing, and the outcome may yet change as other homebuilders remain interested in buying the Weyerhaeuser unit, cautioned the people, who asked not to be named because the matter is confidential.
Taylor Morrison Home Corp and Brookfield Residential Properties Inc, the land developer controlled by Brookfield Asset Management
Representatives for Weyerhaeuser, Starwood Capital and Brookfield declined to comment. Tri Pointe and Taylor Morrison did not respond to requests for comment.
The so-called Reverse Morris Trust structure is used when a parent company has a subsidiary that it wants to sell without paying tax. That subsidiary will usually have a bigger market capitalization than the company it wants to merge with, and its shareholders would own more than 50 percent of the combined entity.
For example, Tri Pointe has a market capitalization of just over $450 million - far smaller than the roughly $2.7 billion expected valuation of the Weyerhaeuser unit.
Tri Pointe went public in January, one of the first U.S. homebuilders to go public in almost a decade as the housing sector rebounds from the trough of the financial crisis on the back of low mortgage rates and rising prices.
Fellow homebuilder Taylor Morrison, whose owners include private equity firms TPG Capital and Oaktree Capital Management LP, also went public in April.
Irvine, California-based Tri Pointe, led by Chief Executive Douglas Bauer, builds houses in California and Colorado. Barry Sternlicht, whose Starwood owns a large stake in the company, is chairman of Tri Pointe.
(Reporting by Soyoung Kim in New York; Additional reporting by Greg Roumeliotis and Ilaina Jonas; Editing by Phil Berlowitz)