Tailor Made Merger

Tailor Made Merger

DEVELOPMENT by Mark Gordon | Managing Editor

John Landrum better enjoy challenges: The new Gulf Coast CEO is running a U.K.-based company and a large portion of a billion-dollar merger.

John Landrum was barely a month into what came as close as possible to his dream job - running the Lakewood Ranch-based North American offices of British homebuilder Taylor Woodrow - when, as he says, "the merger happened."

Or more precisely, on March 25, Taylor Woodrow announced a $4.9 billion deal to buy George Wimpey, the British parent company of Morrison Homes, a suburban Atlanta-based homebuilder. The deal, expected to close July 1, was the largest ever between British homebuilders and created the biggest builder in the U.K. In the U.S., the deal has the potential to boost Taylor Woodrow's annual building output, already one of the highest in the country, by at least 50% within five years.

Landrum had no idea a deal was in the works when he left his chief operating officer position with the Related Group, a large Miami-based condo and land developer. He took over the chief executive job for Taylor Woodrow's North American offices Feb. 15.

So overnight, Landrum's mission changed. Not only would he be running a business in the midst of massive market slide, but he would also be simultaneously managing the delicate balance of merging a pair of multi-million dollar companies with thousands of employees.

All of the U.S. related merger tasks fall under Landrum. And all of those tasks have taken on top priority status. That includes hiring and promoting new managers for consolidated divisions, merging the technologies of two companies, coordinating layoffs and figuring out how to make projected costs savings of $40-$50 million a reality.

"These two companies fit together really well," Landrum says. "We have the land development skills and they have the homebuilding skills."

Landrum, who has never orchestrated a post-merger transition at any company, says he would have taken the Taylor Woodrow job even if he'd had known about the Wimpey deal.

Still, it's been an intense introduction to the CEO chair for Landrum, who says he's wanted to run his own company for several years, maybe as far back as when he was a teenager in and around Houston, working on construction sites.

The merger, and its details, are now just another way for Landrum to prove himself. He says one of his main goals is to make sure he, and the other senior executives, get things right the first time. Adds Landrum: "There are a lot of opportunities for us to improve things."

Managing change

Landrum is learning that merger transitions involving so many people in so many places take a lot of meetings, conference calls and memos. He goes to London once a month and regularly meets with executives in Taylor Woodrow offices in Toronto, Houston and Southern California, among other places. He took his top staff to Phoenix a few months ago for a training seminar in managing change.

And Landrum decided early on communicating companywide on what's happening with the merger would be a necessity. "The more people know, the better off they are, whether it's good or bad," Landrum says. "We want to eliminate as much of the unknown as we can, as quickly as we can."

The merger may have begun in British boardrooms, but its influence was partially American: It was the U.S. housing slump that triggered a wave of consolidation in the British homebuilding industry over the past year, industry analysts say, as U.K. investors worried the downturn would carry over the Atlantic Ocean.

It makes sense then, that a successful consolidation, which Landrum expects to be completed by the end of 2007, comes with high stakes. The comeback of the U.S. housing market, both when and how strong, will also have a say in how successful the merger ultimately is.

Morrison's niche is in building single-family homes for first-time buyers and average-income retirees. Its average home costs $227,000, the company says, although it does build homes for as low as $120,000 in some parts of the country. It sells about 4,000 homes a year, mostly in the western and southern U.S.

Taylor Woodrow traditionally builds homes and condos for a higher income pool of buyers. It builds in several areas across the country and Canada, focusing on markets with high population growth and low unemployment. Gulf Coast projects include Artisan Lakes, a 2,500-home project on Moccasin Wallow Road in Palmetto, Waterchase in Tampa and Queens Harbour on Longboat Key.

Buying opportunity

Frank Taylor founded the company in 1921 in Blackpool England, when, as a 16-year-old, he built two homes in the northwest England factory town. The company has since expanded to the U.S. and other countries, first building in the New York City suburbs of Long Island.

Taylor Woodrow also has some non-homes on its development resume. Those include hydroelectric dams in Canada, the Orange County/John Wayne Airport in California and Main Street USA at Disneyland-Paris.

Both Morrison and Taylor Woodrow have suffered during the latest market slump, as have most other homebuilders. Sales have dropped at both firms and Landrum predicts the market might not make its full rebound for another a year or even 18 months.

Still, just like many other homebuilders, Landrum looks at the slump as a buying opportunity. Taylor Woodrow recently bought land for future development in places such as Houston, Northern California, Ottawa, Palm Beach Gardens, Phoenix and Toronto.

The company hasn't bought any land on the Gulf Coast in the past year and, according to Landrum, it has no plans to do so in the near future. "These are tough markets here right now," says Landrum. "We have not found a deal that makes sense."

Landrum and other Taylor Woodrow executives obviously like Florida and its future prospects, though. Its Lakewood Ranch office will remain the company's headquarters after the merger and some of the Morrison employees will be relocated from that company's Alpharetta, Ga.-based office.

AT A GLANCE

Taylor Woodrow, PLC

(Company trades on the London Stock Exchange, using pounds. Ratios are for 2006).

Net Profit Margin 8.13%

Operating Margin 12.90%

EBITD Margin 12.49%

Return on Average Assets 7.37%

Return on Average Equity 14.36%

Employees 8,158

Source: Google Finance

REVIEW SUMMARY

Business. Taylor Woodrow, Bradenton

Industry. Homebuilding

Key. The British-based homebuilding company is merging with another large British homebuilder in the midst of the U.S. market slump.