Tri Pointe Homes-Weyerhauser Deal Is Fraught With Risk

By Jay Jenkins – Nov 10, 2013 at 8:45AM

NYSE: WFC

Wells Fargo

Market Cap

$215B

Today's Change

(-0.56%) -$0.34

Current Price

$60.60

Price as of April 24, 2024, 4:00 p.m. ET

The $2.7 billion deal to merge Weyerhauser's building unit with Tri Pointe Homes is an aggressive deal that could pay off big -- unless it doesn't.

Last week, Weyerhauser (WY -0.54%) and Tri Pointe Homes (TPH -1.34%) announced a deal to merge Tri Pointe with Weyerhauser's building unit. The deal will give Weyerhauser an approximately 80% stake in the newly formed entity and a cool $700 million in cash. The resulting newly formed company will immediately be one of the 10 largest homebuilders in the United States.

Sounds great, right? Well, maybe. In the following video, Fool contributor Jay Jenkins summarizes the deal but also reminds prospective investors of the risks -- particularly Tri Pointe's aggressive growth strategy in the face of still uncertain trends in the macro real estate market. Just look at Wells Fargo's (WFC -0.56%) mortgage unit for evidence.

Fool contributor Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Wells Fargo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.