Movers and Shakers: Lennar Redefines Bigness

We’ve seen big before, but never this big.

A decade ago, Centex topped the Giant 400 with $2.29 billion in 1990 home building revenue, and the billion-dollar club had seven members. Last year, Pulte was No. 1 with $2.95 billion. (Lennar was closing fast with $2.09 billion.) And 13 builders topped a billion bucks in 1998 revenue. But when No. 5 Lennar recently announced it will close later this year on the purchase of No. 8 U.S. Home Corp., the Miller family’s Miami-based juggernaut suddenly made this year’s ranking nebulous, if not passe.

Uneasy rests the crown as Pulte ends the 1990s on top with $3.84 billion in 1999 volume, but with the knowledge that Lennar and U.S. Home combined to deliver 21,658 homes for $4.9 billion last year. What will this new behemoth do in 2000?

As we reported last month, the whole housing industry is now abuzz with speculation that the first mega-merger of the new millennium might not be the last. But before another one comes along, Wall Street (and the billion-dollar builders who might be involved) might want to see if anything profitable really comes from the Lennar/U.S. Home deal. So we asked the principals of the two firms what they expect to gain and what signs of new prowess we’ll see first.

Lennar president and CEO Stuart Miller says the merger is immediately accretive to earnings and that the management and cultural fits promise a better company, not just a bigger one.

"Our resulting size provides valuable benefits from both operational and financial market perspectives," says Miller. "While we both have a significant presence in Florida, Texas and Arizona, U.S. Home brings a substantial presence in Denver, Minneapolis and the Eastern Seaboard states. Lennar’s extensive land holdings in California will accelerate U.S. Home’s expansion there, as well as affording Lennar faster absorption of its land bank. Finally, even when we compete in the same market, at the same price point, we have very different product strategies that appeal to different buyers."

This is a reference to Lennar’s "everything’s included" strategy that minimizes customization, which contrasts to U.S. Home’s "have it your way" approach, which allows buyers to change just about anything.

U.S. Home chairman Robert Strudler said when the deal was announced that U.S. Home sought the merger because the firm’s proven track record of profitability in the 1990s was unappreciated on Wall Street.

"The value of the U.S. Home franchise to our shareholders is not being maximized, as small-cap stocks are not afforded even their intrinsic worth, much less a premium for proven results. We believe the combination of Lennar and U.S. Home will create a bigger, stronger and faster-paced organization."

It remains to be seen whether much will change because the whole home building sector is undervalued by Wall Street. But if there is new power here, where will it be unleashed first?

"In Denver," says Miller. "We’ll bring the Lennar name and product offering into that market very fast to expand the market share U.S. Home has already achieved. We’ll move the Lennar franchise into all of the new markets eventually. And on the east coast of Florida, you’ll see U.S. Home building on Lennar land."

Miller acknowledges that people will eventually move back and forth from one side of the combined company to the other but discounts that possibility in the near term. "After the dust settles, people start to worry about how this will affect them. We don’t anticipate any job losses. To the contrary, we think a lot of new opportunities will open up. Right now, you’ll see a lot of business as usual."

Miller also acknowledges that U.S. Home’s strong management training was one of the attractions for Lennar. "We’ll use their training program throughout the entire company, and Bob Strudler will run it."

In the long run, the ace up Miller’s sleeve might be Isaac Heimbinder, the former U.S. Home president, now "executive vice president of e-commerce initiatives" in the combined corporation. Heimbinder has locked himself in a room somewhere to contemplate where big builders fit into the New Economy.

"We’ve sold people the largest product they ever buy, and in the past we’ve said, ‘We’ll see you again in seven years,’" says Heimbinder.

"Now, we are asking what other things we can provide while the homeowner lives in the house. We all have mortgage companies. Lennar has done a good job with a title company. In the near future, there will be opportunities that regulatory changes are bringing. Your magazine has already written about ‘the last mile,’ the opportunities in phone, cable, electricity and gas service. All of those things are now deregulated, and builders, especially large builders who are community developers, could get involved.

"Then there’s the Internet. Since we already have a relationship with the customer through the Internet, where we communicate all through the sales and construction processes, we might want to expand that to provide things they need after they move in, like window treatments, furniture, etc. It may sound grandiose, but there’s the potential of creating a customer for life."

Heimbinder obviously has big plans. The housing industry, especially the big public builders on top of the Giant 400, will be watching closely to see if the new Lennar is greater than the sum of its parts.

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