Washington Homes Inc., which has grown in the past five years to become the second-largest homebuilder in the capital's metropolitan area, said yesterday that it had agreed to be acquired for $77.4 million by Hovnanian Enterprises Inc. of New Jersey, the nation's 16th-largest builder.
The Landover company has a scattering of projects in the Baltimore area, while most of its 90 subdivisions are in suburban Washington and Northern Virginia. It also operates in the South as Westminster Homes, with projects in Alabama, Mississippi, North Carolina and Tennessee.
"The last several years we've had great results," said Geaton A. DeCesaris Jr., chairman and president of Washington Homes, who will now become the company's No. 2 executive behind president and chief operating officer, Ara K. Hovnanian.
"We have an excellent market position in the Washington, Baltimore and North Carolina regions. Good news made us attractive to other companies," DeCesaris said, adding that the transaction was a "win-win" for both companies.
According to Professional Builder magazine's 2000 survey, Washington Homes was the nation's 39th-largest builder, up from No. 54 in 1999. It will continue to operate under the Washington Homes banner, according to DeCesaris.
"It was an equally good transaction for them as it was for us," DeCesaris said. "It was a good transaction for them in that it ... moves them up in the top 10 builders of the nation, and it was good for us because it does all the same things plus it provides liquidity to our current shareholders."
Under terms of the agreement, Washington shareholders will receive the equivalent of 1.39 Hovnanian Class A common shares, or $10.08 in cash, for each share of Washington Homes, a 41 percent premium to Friday's close of $7.125.
Hovnanian will also pay off or assume Washington Homes' total liabilities of $60 million.
Shares of Washington Homes rose 19 percent, or $1.375 yesterday to $8.50. Hovnanian shares fell 50 cents yesterday to $6.5625
"Our two companies are an exceptional cultural and strategic fit," Hovnanian said in a statement. "Washington Homes has a similar focus on quality and profitability and operates in complementary markets, which will enhance our market concentration strategy."
Hovnanian, the largest builder in New Jersey, also builds in Dallas; Southern California; Nashville, Tenn.; Huntsville, Ala.; and Mississippi. When the deal is completed, the two companies' combined assets will approach $1 billion .
Hovnanian said the firm's unsecured revolving line of credit "is sufficient" to complete the acquisition and "continue a combined course of strong revenue and profit growth into 2001."
The transaction is expected to close after regulatory and shareholder approvals.
The companies said both boards had approved the merger and that shareholders representing a majority of the votes had agreed to vote for the deal.
Washington Homes has granted Hovnanian a break-up fee if the transaction is terminated for certain reasons.
Washington Homes' expansion has been dramatic since 1996 when it delivered 1,054 homes with revenue of $175 million.
Last year, it delivered 2,124 homes and revenues of $362 million and this year reported sales of 2,517 homes and revenues of $470 million.
As of July 31, the combined companies have a backlog of 3,332 homes, valued at $800 million and expect to deliver 8,000 homes in fiscal 2001.
"We feel very proud of where we are, and that is what made us so attractive to a company such as Hovnanian," DeCesaris said.