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(Reuters) - D.R. Horton Inc (DHI.N) on Monday offered to buy 75 percent of Forestar Group Inc (FOR.N) for about $520 million, pitting the No. 1 U.S. homebuilder against Starwood Capital Group, which in April agreed to buy the Texas-based real estate developer.
D.R. Horton said it offered $16.25 per Forestar share, which represented a 14 percent premium to the $14.25 offered by Starwood, the company said.
Barry Sternlicht-led Starwood, an investment firm with a focus on real estate, manages assets of more than $51 billion. It declined to comment on D.R. Horton's offer.
Forestar said in a statement late on Monday it would review D.R. Horton's offer and that it had not yet determined if the proposal was superior to Starwood's.
Forestar's shares closed up 12.7 percent at $16, while D.R. Horton's shares ended 1.5 percent lower at $33.29 on Monday.
D.R. Horton's bid highlights the pressure on U.S. homebuilders to seek ways to boost their land holding as rising land acquisition costs and a tight labor market hamper efforts to tap the recovery in the housing market.
D.R. Horton's smaller rival Lennar Corp (LEN.N) in February bought fellow Florida-based homebuilder WCI Communities Inc, as it seeks to boost its land bank.
The deal could "enhance (D.R. Horton's) land acquisition capabilities as it relates to larger master-planned communities which has historically been (Forestar's) focus," Wedbush Securities analyst Jay McCanless wrote in a client note.
Forestar, which mainly develops lots and sells them to homebuilders, owns interests in 50 residential and mixed-use projects comprising 4,600 acres of real estate.
The deal would also help D.R. Horton expand operations in Texas — a state where the housing market "remains positive," CFRA analyst Ken Leon said.
Under the proposed deal, Forestar will remain public to ensure continued access to capital to help fund its increasing scale, D.R. Horton said.
The deal would generate $1 billion more in annual revenue for D.R. Horton over five years, the company's Chief Operating Officer Mike Murray said on a call with analysts.
D.R. Horton said it had the cash and other immediately available capital to fund the deal.
Forestar stockholders have the option of either receiving cash for each share they own or retaining the share.
Moelis & Co was D.R. Horton's financial adviser.
JMP Securities LLC is Forestar's financial adviser, while Skadden, Arps, Slate, Meagher & Flom LLP is its legal counsel.
Reporting by Arunima Banerjee in Bengaluru; Editing by Sai Sachin Ravikumar