FOR: WASHINGTON HOMES, INC.
FROM: Pamela Roderick, Sr. Account Executive
Greg Schmalz, VP-Media Relations
Nicholas Patruno, Investor Relations
(212) 564-4700
COMPANY Christopher R. Spendley, SVP and CFO
CONTACT: (301) 773-2500
FOR IMMEDIATE RELEASE
HOVNANIAN ENTERPRISES AND WASHINGTON HOMES ANNOUNCE MERGER
LANDOVER, MD, August 28 -- Washington Homes, Inc. (NYSE: WHI) and
Hovnanian Enterprises, Inc. (ASE: HOV) announced today that they have signed a
definitive merger agreement. Hovnanian Enterprises, founded in 1959 and
headquartered in Red Bank, New Jersey, and Washington Homes, headquartered in
Landover, Maryland, are each leading national homebuilders. The combination of
the two companies is expected to rank among the top ten homebuilders in the
United States.
Under the terms of the agreement, Washington Homes shareholders will
receive the equivalent of 1.39 Hovnanian class A common shares or $10.08 in cash
for each share of Washington Homes, subject to certain adjustments, for a total
purchase price of approximately $77.4 million, based on Hovnanian's closing
share price of $7-1/16 on Friday, August 25, 2000. Up to 50 percent of the
consideration will be paid in cash, with the balance, not to exceed 60 percent,
paid in Hovnanian common shares. The transaction is expected to close following
regulatory and shareholder approvals and customary closing conditions. Hovnanian
expects the transaction to be accretive to earnings per share in fiscal year
2001.
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In its fiscal year ended July 31, 2000, Washington Homes delivered
2,517 homes and recorded approximately $470 million in revenue. Hovnanian
projects record deliveries of approximately 4,400 homes and revenue approaching
$1.2 billion in its fiscal year ending October 31, 2000. As of July 31, 2000,
the combined companies have a backlog reaching 3,332 homes valued at $800
million and expect to deliver about 8,000 homes in fiscal 2001.
Subsequent to the merger, Hovnanian will maintain its current position
as the largest builder in New Jersey and will become the second-largest builder
in Metro-Washington, DC and the largest builder in North Carolina. In addition,
Hovnanian will continue to have a significant presence in Dallas, Texas and
Southern California and will be a top-five builder in Nashville, Tennessee, and
the market leader in Huntsville, Alabama and the Gulf Coast of Mississippi.
"Our two companies are an exceptional cultural and strategic fit," says
Ara K. Hovnanian, president and CEO of Hovnanian. "Washington Homes has a
similar focus on quality and profitability and operates in complementary
markets, which will enhance our market concentration strategy. Together, we will
become a more diverse and substantial company, with shareholders' equity
exceeding $300 million and total assets approaching $1.0 billion. Our increased
size and focused market concentration will provide powers and economies of scale
that should lead to superior returns for our shareholders. Additionally, the
combined company will give our associates a wider stage and a more advantageous
environment in which to flourish. We are delighted to welcome aboard the strong
leadership team and the entire family of Washington Homes associates who
achieved a record performance in their just-ended fiscal year."
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"Our management team is very excited to join forces with Hovnanian,"
says Geaton A. DeCesaris Jr., chairman, president and CEO of Washington Homes.
"Our two companies have similar histories of conservative growth and operating
excellence, with a shared emphasis on hiring and cultivating the best people in
the industry," he adds. Mr. DeCesaris will become president of Homebuilding
Operations and chief operating officer for Hovnanian and will also become a
member of the combined company's Board of Directors. Thomas J. Pellerito,
currently president of Homebuilding and chief operating officer of Washington
Homes, will become president of Hovnanian's Southeast Region, which will consist
of the company's markets in Maryland, Virginia, North Carolina, Tennessee,
Alabama and Mississippi. "This will allow us to shift Robert Karen, our current
Southeast Region president, to a new executive role with our growing active
adult community group, an area where he has great expertise," says Mr.
Hovnanian. Christopher Spendley, senior vice president and chief financial
officer of Washington Homes, will become the chief financial officer of
Hovnanian's Southeast Region.
Mr. DeCesaris adds, "The merger with Hovnanian accomplishes all of our
objectives, which include providing additional liquidity to our shareholders,
more opportunity and better training programs for our associates, and better
access to the capital markets, as well as maximizing efficiencies within our
current operations." The two companies build a similar, wide array of home
types, ranging from townhomes to larger, single-family homes aimed at move-up
buyers, to active-adult communities. Hovnanian anticipates adopting the
highest-quality designs and best construction practices from the two companies
in the markets where both companies currently operate. Both of the companies
offer full-service mortgage and title services and it is anticipated that the
increased volumes of the combined company will enhance the operational
efficiencies and profitability of these operations.
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"Our unsecured revolving line of credit is sufficient to accomplish
this acquisition and to continue a combined course of strong revenue and profit
growth into 2001 and beyond," says Mr. Hovnanian. "However, we will eventually
seek additional financing to maintain our traditional levels of capital
availability. Washington Homes' strong balance sheet and favorable land position
allow us to complete this acquisition with minimal effects on our leverage.
Hovnanian remains committed to our stated objective of achieving a one-to-one
ratio of debt to equity by fiscal 2003." Washington Homes controls more than
11,700 lots in attractive locations which will meet the company's growth targets
for the next three to five years; approximately 75 percent of these lots are
controlled under rolling option contracts.
Under the terms of the transaction, Washington Homes shareholders can
elect to receive cash or Hovnanian stock, subject to pro-ration such that not
more than 50 percent of the total consideration is cash and not more than 60
percent of the total consideration is stock. The amount of stock to be paid is
based on a ratio of 1.39 Hovnanian shares for each Washington Homes share, and
the stock consideration is subject to a collar arrangement that may limit the
increase or decrease in the value of the stock consideration to 20 percent.
Hovnanian will pay off or assume Washington Homes' debt, which will be
refinanced under Hovnanian's $375 million unsecured revolving credit facility.
Washington Homes was advised in this transaction by Wasserstein Perella and
Company, Inc.
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The merger has been unanimously approved by the Boards of Directors of
both companies and is expected to qualify as a tax-free reorganization to the
Washington Homes shareholders. Shareholders of Hovnanian representing more than
the required majority of the voting power of the company have agreed to vote in
favor of the transaction. Shareholders of Washington Homes representing a
majority of the outstanding shares of Washington Homes have also agreed, subject
to certain conditions, to vote in favor of the transaction, which will require
the approval of two-thirds of the outstanding shares. Washington Homes has
granted Hovnanian a break-up fee if the transaction is terminated for certain
reasons.
The combination of the two companies will solidify Hovnanian's position
among the largest homebuilders in the U.S. On an equally important level, Mr.
Hovnanian notes that "it will allow us to continue to apply our standardized
processes and operating strategies across a wider universe, in order to further
enhance our returns." The company's pioneering enterprise-wide backbone system,
being developed together with SAP AG (NYSE ADR: SAP), is designed for the
volumes anticipated for the combined company, according to Mr. Hovnanian, and
"should help us to significantly improve our profit over the coming years. We
are undertaking this acquisition at a time when we believe the equity of both of
our companies is undervalued by the marketplace; we see our combination as a way
to increase our corporate reach and to move toward our vision of building
better."
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In connection with their proposed merger, Hovnanian will file a
Registration Statement with the Securities and Exchange Commission and a Proxy
Statement/Prospectus directed to shareholders of Washington Homes will be
included in that Registration Statement. Other materials relating to the Merger
also will be filed with the Commission. Investors are urged to read the Proxy
Statement/Prospectus, Registration Statement and other relevant documents to be
filed with the Commission, because they will contain important information.
Materials filed with the Commission will be available electronically, without
charge, at an Internet site maintained by the Commission. The address of that
site is http://www.sec.gov.
Hovnanian Enterprises, Inc. designs, constructs and markets
single-family homes, townhomes and condominiums in planned residential
communities in New Jersey, North Carolina, Pennsylvania, Virginia, Maryland, New
York, California, Texas and Florida in the United States, and in Poland.
Washington Homes, Inc. designs, builds and markets single-family
detached homes and townhomes. It is a leading provider of moderately priced,
quality homes in Maryland, Virginia and Pennsylvania, and under the Westminster
Homes name in Alabama, Mississippi, North Carolina and Tennessee.
Note: All statements in this Press Release that are not historical facts should
be considered as "forward-looking statements" within the meaning of the Private
Securities Litigation Act of 1995. Such statements involve known and unknown
risks, uncertainties and other factors that may cause actual results to differ
materially. Such risks, uncertainties and other factors include, but are not
limited to, changes in general economic conditions, fluctuations in interest
rates, increases in raw materials and labor costs, levels of competition and
other factors described in detail in the Company's Form 10-K for the year ended
October 31, 1999.
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