What happened

Shares of AV Homes (NASDAQ:AVHI) have soared today, up by 29% as of 1:40 p.m. EDT, after the company announced it was being acquired. Larger homebuilder Taylor Morrison Home Corporation (NYSE:TMHC) is scooping up AV Homes in a $1 billion deal.

So what

Taylor Morrison is looking to acquire AV Homes for $21.50 per share in a cash-and-stock deal valued at $963 million including debt. The equity component of the deal is valued at around $490 million, or 1.1 times book value. AV Homes shareholders can elect to receive either $21.50 per share in cash, 0.9793 shares of Taylor Morrison, or a combination of $12.64 per share and 0.4034 Taylor Morrison shares, all of which is subject to proration.

Interior of a Taylor Morrison home in Austin

Image source: Taylor Morrison.

The overall consideration must consist of 60% cash and 40% stock.

Now what

The companies expect to generate approximately $30 million in annualized synergies from the acquisition. Taylor Morrison is seeking to expand into the more affordable, first-time buyer segment of the market. Acquiring AV Homes, which is a regional homebuilder in Florida, the Carolinas, Arizona, and Texas, will allow Taylor Morrison to expand into those markets. Taylor Morrison already operates in those regions, making AV Homes a highly complementary acquisition.

The deal is expected to close in the third or fourth quarter and is subject to shareholder approval after both boards unanimously approved the deal. After the deal closes, AV Homes shareholders will own approximately 10% of the combined company.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.