(Reuters) - Forestar Group Inc (>> Forestar Group Inc.) said on Thursday that U.S. homebuilder D.R. Horton Inc's (>> D.R. Horton, Inc.) offer to buy a majority stake in the real estate developer could be superior to its deal with Starwood Capital Group.
Forestar also said it was still subject to the agreement with Starwood, which in April agreed to buy the Texas-based company for $14.25 per share, or about $605 million.
D.R. Horton, the No. 1 U.S. homebuilder, on Monday offered to buy 75 percent of Forestar for $16.25 per share, or about $520 million in cash.
Forestar's shares rose as much as 2.2 percent to $16.20, just shy of the offer price.
D.R. Horton's offer comes at a time when U.S. homebuilders are seeking 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.
Smaller rival Lennar Corp (>> Lennar Corporation) in February bought homebuilder WCI Communities Inc as it seeks to boost its land bank.
Edward Jones analyst Robin Diedrich said Starwood could make a bigger offer, given its size and experience in acquisitions.
Under the deal proposed by D.R. Horton, Forestar will remain public to ensure continued access to capital to help fund its increasing scale.
This means shareholders can retain an interest, potentially making the offer attractive to the board and the management team, Diedrich said.
Barry Sternlicht-led Starwood, an investment firm with a focus on real estate, manages assets of more than $51 billion.
Starwood in March raised its bid to buy Milestone Apartments Real Estate Investment Trust (>> Milestone Apartments Real Estate Invt Tr) after proxy advisory firm ISS recommended Milestone unitholders to vote against the deal.
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.
Under certain circumstances, Forestar has to pay Starwood $20 million if the deal is terminated.
(Reporting by Arunima Banerjee in Bengaluru; Editing by Sai Sachin Ravikumar and Sriraj Kalluvila)