Beazer Homes USA, Inc.

5775 Peachtree Dunwoody Road, Suite C-550
Atlanta, Georgia 30342
U.S.A.
(404) 250-3420
Fax: (404) 250-3428

Public Company
Founded: 1994
Employees: 1,000
Revenue: $647.8 million (1995)
Stock Exchanges: NYSE
SICs: 1521 Single-Family Housing Construction; 6719 Holding Companies, Not Elsewhere Classified

Beazer Homes USA, Inc. is the seventh-largest builder of single family homes in the United States. The company concentrates on communities which have higher than average population growth, primarily in the Southeast and Southwest, and targets its projects to first-time home buyers or those making their first move up. In 1996, Beazer Homes operated in nine states, six of which—Arizona, California, Florida, Nevada, North Carolina, and Texas—led the country in housing starts. It also built homes in South Carolina, Georgia, and Tennessee. At the end of the company’s 1995 fiscal year (September 30, 1995), total revenue was $647.8 million. During that year Beazer Homes closed the sale of 4.4 million houses, with an average sales price of $148,500.

Early History

In 1968, Brian Beazer became chief executive officer of Beazer PLC, his family’s homebuilding company in Bath, England. Over the next 18 years, Beazer built the company into the fourth-largest homebuilder in the United Kingdom, and, with the purchase of the European company French Kier, Beazer became a major civil engineering contractor. Through acquisitions in the United Kingdom and Europe, the company’s operations included homebuilding, construction contracting, and real estate.

1985: Coming to America

Beazer PLC entered the U.S. housing market in 1985 with the purchase of Cohn Communities, an Atlanta-based home-builder. Cohn, a 22-year-old company, had been building homes in the Atlanta area since 1967. The transaction was typical of Beazer: buy a solid local company with management that knows the market and leave the managers in place.

In the United Kingdom, land for housing developments was scarce due to tight regulations and high interest rates. Beazer’s strategy was to hold on to the land the company already owned in the United Kingdom and to add to its holdings in the United States. The company began its U.S. expansion in 1987, buying two more established regional homebuilders. The first, Squire Homes had been building homes in the Raleigh, North Carolina, market since 1970, and in Charleston, South Carolina, for two years. Beazer’s second purchase, Nashville-based Phillips Builders, was one of the largest homebuilders in Tennessee.

The company organized its homebuilding operations as a wholly owned subsidiary, Beazer Homes, Inc., which performed, in the company’s words, under a policy of “decentralized operations with experienced management.” Local managers, most from the acquired companies, were responsible for operating decisions regarding design, construction, and marketing. The centralized headquarters dealt with overall strategy, land acquisitions, and financial matters.

However, Brian Beazer was interested in more than the homebuilding segment of the U.S. construction industry, and he soon acquired Gifford-Hill & Co., a Dallas-based cement producer, and Tidewater Construction Co., a heavy construction contractor. Beazer PLC financed all these acquisitions, as well as that of French Kier, by issuing new stock.

With Shearson Lehman Hutton, Inc. as his U.S. investment banker, Beazer went looking for a major producer of construction materials and found Koppers Co., a Pittsburgh conglomerate, whose operations ranged from engineering services to chemical plants to stone quarries. The takeover, however, was not friendly, with opponents fighting the effort on two fronts. The first was in the courts, where one judge initially blocked the deal on antitrust grounds and another delayed action on possible bank-borrowing violations.

At the same time, Koppers’ CEO, Charles Pullin, launched a major public relations attack. Beazer PLC, although portrayed as a foreign invader going after a venerable U.S. company, was not the major target. Instead, Pullin focused on Shearson and American Express, which owned 62 percent of Shearson and had put $23 million of its own money into the company Beazer set up to finance the takeover, thus owning a 46 percent interest. As explained in the June 20, 1988 issue of Business Week, Shearson had initiated the bid, financed it, and become an equity partner. Koppers’ officials and hundreds of other citizens of Pennsylvania cut up their American Express cards. The State’s governor and its two senators expressed outrage. Shearson lost an estimated $7 billion worth of business with Pennsylvania, and the mayor of Pittsburgh refused to allow Shearson to underwrite any more municipal bonds for the city.

Yet despite the delays and the actions against Shearson, when Beazer PLC increased its offer from $45 to $61 per share (four times Koppers’ book value), the battle was over. Koppers’ board accepted the bid in June 1988. For $1.7 billion, Beazer had a major presence in U.S. construction materials. Having financed the takeover completely with bank loans, the company also had a massive debt.

With the acquisition, Beazer became the number two producer of aggregates (crushed stone) and asphalt in the United States. In addition to Koppers and Gifford-Hill, Beazer had building materials operations in northern California and operated more than 100 quarries. As homebuilding continued to slow in the United Kingdom due to tight money policies, the U.S. activities became more important. In 1989, those operations generated more than 50 percent of Beazer’s operating profits, and held more than 75 percent of the company’s assets. Although homebuilding was a relatively small part of Beazer’s operations in the United States, it generated $102.8 million in revenue for 1989 and $106.6 million for 1990.

To cut its debt, Beazer PLC sold off Koppers’ chemical division, realizing $650 million after taxes. However, the recession stopped or slowed anticipated road and bridge building and other activities in the construction industry, and Koppers never generated the profit margins Beazer needed to service the debt.

Beazer Homes was also experiencing difficulty. Between 1987 and 1991, housing starts in the United States steadily declined. This was due to a slowing in the number of people forming households, the overbuilding of apartments and other multifamily units, and the recession of 1990-1991.

A variety of things influenced the demand for housing. In the short term, economic factors had the greatest influence on housing construction. These included mortgage rates, the cost of owning a home, the amount of real disposable income people had to spend, and consumer confidence that home ownership was a good investment—that they would make money when they sold their home. Changes in tax legislation, such as the amount of deductibility for home interest payments or capital gains rates, also contributed to the people’s home-buying patterns.

1991: The Beazer PLC Acquisition

In 1991, housing starts in the United States fell to a historic low of 1.01 million units. Operating in four states in the southeast, Beazer Homes sold 927 homes that year, at an average price of $105,000. Revenue for the year was $97.6 million. At the beginning of the year, Ian McCarthy was named executive vice-president. McCarthy was a civil engineer and came from Beazer PLC’s construction operations in Hong Kong and Thailand. Twenty-two months later he became president of Beazer Homes.

Meanwhile, Beazer PLC was producing annual revenues of about $3.4 billion, but the company’s net debt was just over $1.7 billion. On September 11th, Brian Beazer agreed to a refinancing plan which would spin off the company’s British and European operations, renamed CHB, and float their stock on the London stock market. Under the plan, Mr. Beazer would retain control of Koppers, Beazer Homes, and the company’s other U.S. operations, but lose the business his father started.

Two days after the prospectus detailing CHB’s operations was published, Lord Hanson, head of the British conglomerate Hanson PLC, spoke to Brian Beazer about buying the entire Beazer organization and retaining Mr. Beazer as CEO. Shortly thereafter, Beazer’s shareholders, one-third of whom lived in the United States, accepted Hanson’s agreed takeover offer of £351 million ($612 million).

Christopher Austin noted in Mergers & Acquisitions, that the Beazer PLC acquisition was the first takeover in which shareholders in two different countries received a single offer at the same time. For this to happen, the U.S. Securities and Exchange Commission and the U.K. Takeover Panel worked cooperatively to modify merger rules and practices to meet the specific needs of the two companies. Investment Dealer’s Digest reported the two bodies dealt with five issues in this precedent-setting transaction: disclosure in the preannounce-ment stage, the form of the public announcement, timing problems with commencement of the offer, delivery of payment for tendered securities, and restrictions on the advisory firms regarding trading Hanson’s and Beazer’s securities.

Company Perspectives:

As one of the largest and financially strongest homebuilders in the United States, Beazer Homes is building for growth by remaining focused on its “Formula for Success.” This formula —combining decentralized operation with a tight, centrally-controlled conservative financial policy —recognizes the cyclicality of the homebuilding industry and is designed to maintain financial flexibility during market downturns and provide the local control and nimbleness necessary to take advantage of upturns.

As a result of the acquisition, Beazer PLC was restructured and an indirect wholly owned subsidiary of Hanson PLC, Beazer America, Inc., purchased the U.S. operations, including Beazer Homes, Inc.

1992-1995

During 1992, Beazer Homes entered new markets. Squires Homes expanded from Charlotte to nearby Raleigh, anticipating strong employment growth related to the state government and educational institutions located at the Research Triangle Park. In October, the company bought a condominium development in Clifton, New Jersey. Revenue that year was $127.7 million with closings on 1,182 houses. The average price of a Beazer home was $108,000.

By 1993, single family starts in the United States were nearly 53 percent higher than in 1991. In February, Beazer expanded its operations to the West Coast market with the purchase of Watt Housing Corporation for $116 million. The purchase was financed by borrowing the whole amount from a subsidiary of Hanson PLC.

Watt built homes in developments in California, Arizona, and Nevada under the names Watt Homes, Watt Hancock, and Watt Nevada. To handle its West Coast homebuilding activities, Beazer America established Beazer Homes Holding (BHH), a wholly owned subsidiary. In October, Beazer Homes, Inc., the East Coast homebuilding subsidiary, bought Panitz & Company, a Florida homebuilder, for $3.2 million. Ian McCarthy served as president of both subsidiaries.

In November 1993, the two subsidiaries were combined and incorporated as Beazer Homes USA, in anticipation of going public. Ian McCarthy was named president and CEO, and Brian Beazer became the non-executive chairman of the board. In part because of the acquisitions and expansions, total sales for 1993 increased to $340 million, with 3,163 housing starts and over 2,000 closings. That level of activity earned the company a place on the Professional Builder magazine’s annual list of major housing builders, where it ranked 17.

In February 1994, Beazer Homes USA went public. A third of the proceeds of the initial public offering went to pay back Beazer America for financing the Watt purchase. Squires Homes continued to grow in the Carolinas, expanding from Charleston, South Carolina, to Columbia, and, in 1995, to Myrtle Beach.

Beazer Homes maintained a conservative financial structure as sales fluctuated in 1995. The company repurchased its outstanding shares previously held by Hanson Industries for $16 a share and issued $50 million of convertible, preferred stock. In April, Beazer Homes moved into Texas, buying Bramalea Homes Texas from a bankrupt Canadian company. Bramalea had projects in the Dallas and Houston markets, two of the top growing cities in the country. The company also closed out the New Jersey development. Although profits for the fiscal year were down due to higher interest rates at the beginning of the year and a weak economy in California, Beazer Homes moved to 13th on Professional Builder’s 29th Annual Report of Housing’s Giants. Total revenue for the year was $648 million.

1995 and Beyond

Nineteen ninety-six was the best year for homebuilders since 1978, with construction of single-family homes up 15 percent from 1995. In May, Beazer purchased Gulfcoast Homes, Inc., a Florida company building homes in Fort Myers and Naples. In June it bought Trendmaker Homes of Dallas. Markets in which Beazer Homes had developments, including Atlanta, Phoenix, Dallas-Fort Worth, and Houston, were among the busiest, as measured by the number of building permits issued for single-family homes, and the California market began to improve. Revenues for the company’s third quarter, which ended June 30,1996, increased more than 43 percent above the same period in 1995. New orders were up 30 percent for the nine months ending in June.

In looking at the homebuilding industry in the long run, demographics play a bigger role than economics. In a February 7, 1996 news release, U.S. Housing Markets, a housing research journal, predicted that an average of 1.25 million new households would be formed annually between 1996 and 2000. Between 1990 and 1995, when about 1.13 million new households were formed each year, it was the 45-to-54 age group—those at the beginning of the Baby Boom generation—who had the greatest household growth. In the second half of the 1990s, the majority of households were expected be formed by 25-to-34-year-olds, Beazer Homes USA’s primary target group. While demographic factors appeared to favor Beazer, economic factors could influence whether the households live in rental units, multifamily condominiums, or single family homes. Based on the company’s 1996 activities, however, many of those households will be living in homes built by Beazer.

Principal Subsidiaries

Beazer Homes Arizona; Beazer Homes California; Beazer Homes Florida; Beazer Homes Georgia; Beazer Homes Nevada; Beazer Homes Texas; Phillips Builders; Squires Homes.

Further Reading

Austin, Christopher E., “Drawing a Regulatory Road Map from the Hanson-Beazer Merger,” Mergers & Acquisitions, July/August 1992, p. 48.

“Beazer: A Pittsburgh Exile,” The Economist, September 14, 1991, p. 76.

“Beazer Homes USA (BZH),” Barron’s, February 21, 1994, p. 50.

“Beazer USA Changes Name,” Wall Street Journal, February 8, 1985, p. B9.

“British Takeovers: Divide and Lose,” The Economist, September 21, 1991, p. 82.

“Busiest Markets, Single-Family Building,” 2nd Quarter 1996 Flash Report, U.S. Housing Markets, http://www.housingusa.com.

Byrne, Harlan S., “Beazer PLC: Land Scarcity Bodes Well for British-Based Builder,” Barron’s, December 25, 1989, p. 29.

Foster, Geoffrey, “Building Beazer Bigger,” Management Today, October 1986, p. 70.

Hirsch, Albert A., “Residential Construction from a Long-Run Perspective,” Survey of Current Business, U.S. Department of Commerce, June 1994, p. 30.

“How to Tell Who Your Friends Are,” Fortune, April 25, 1988, p. 11.

Lurz, William H., “Acquiring Mind: McCarthy Leads Beazer to Top 20,” Professional Builder, August 1994, p. 78.

McCartney, Scott, “Home Building Business Is Losing Its Local Character,” Wall Street Journal, April 13, 1994, p. B4.

Mencke, Claire, “Homebuilding Stocks: A Tale of Two Tiers,” Investor’s Business Daily, January 15, 1996.

“Mortgage Rates No Deterrent to Eager Home Buyers,” News from U.S. Housing Markets, July 2, 1996, http://www.housingusa.com.

“New Issue Pipeline: Beazer Homes USA,” Investor’s Business Daily, June 13, 1995.

Popper, Margaret, “Hanson, Beazer Merger Establishes Legal Precedent,” Investment Dealers Digest, December 16, 1991, p. 16.

“Pulte Surpasses Centex As Nation’s Largest Builder, Survey Finds,” 1996 Annual Report of Housing Giants, Professional Builder, April 1996, http://www.cahners.com/mainmag/pb.htm.

Reina, Peter, et al., “Beazer Builds through Buyouts,” ENR, April 28, 1988, p. 36.

“Residential Builders Respond to Vigorous New Home Sales Pace,” News from U.S. Housing Markets, August 1, 1996, http://www.housingusa.com.

Reuters, “Hanson Takes Beazer Homes Public and Sells Property,” New York Times, February 24, 1994, p. D4.

Schroeder, Michael, and Maremont, Mark, “Why Koppers Fell before Beazer’s Bulldozer,” Business Week, June 20, 1988, p. 82.

“U.S. Homebuilders Match Production to Household Growth,” News from U.S. Housing Markets, February 7, 1996, http://www.housingusa.com.

Williams, Monci Jo, “Brash New Mogul on Wall Street,” Fortune, May 23, 1988, p. 91.

—Ellen D. Wernick