What happened

Shares of William Lyon Homes (NYSE:WLH) stock are up 11% as of 3 p.m. EST Wednesday, and it isn't hard to figure out why.

This morning, the homebuilder announced that it has agreed to sell itself to rival Taylor Morrison (NYSE:TMHC), merging to create "the nation's fifth largest homebuilder based on LTM [last 12 months] home deliveries."

Wall painting of a big fish eating a smaller fish

Image source: Getty Images.

So what

Taylor Morrison will be paying $2.4 billion including assumed debt -- approximately equal to William Lyon's book value -- to acquire its new prize. In so doing, it will become a top-five homebuilder nationwide, and will occupy the top-five tier in 16 of the 23 markets in which the two companies currently build homes.

It will also make William Lyon shareholders a whole lot richer than they were yesterday, adding to the gains they've already been enjoying, and pushing William Lyon stock up 35% for the last 12-month period.

Now what

Taylor Morrison will pay $2.50 per share in cash, and trade William Lyon shareholders 0.8 share of its own stock in exchange for every share of William Lyon they currently own, resulting in a per-share valuation of $21.45 for William Lyon at current prices.

Speaking of which, the parties anticipate closing this merger sometime between late Q1 2020 and early Q2 -- so there could be as much as six months between merger announcement and merger closing. That means investors should anticipate that the valuation on this deal ($2.4 billion presently) will fluctuate both up and down over time. It all depends on the value of Taylor Morrison stock -- which incidentally was down today, by 4.6%.