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(Reuters) - Forestar Group Inc (FOR.N) scrapped its merger agreement with investment firm Starwood Capital Group on Thursday and said U.S. homebuilder D.R. Horton Inc (DHI.N) would buy a 75 percent stake in the company.
Forestar's shares were down 2.6 percent at $17 in morning trading, while those of D.R. Horton fell 1.7 percent to $33.68.
The real estate developer said D.R. Horton's latest cash offer of $17.75 per share was superior to Starwood's $16 offer for all of Forestar. The homebuilder's offer values the stake at about $560 million.
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.
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.
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, which is expected to close in the fourth calendar quarter of 2017, would add to D.R. Horton's fiscal 2018 earnings, the homebuilder said.
Forestar paid Starwood a $20 million termination fee, the company said in a statement.
Up to Wednesday's close, Forestar's stock had risen 24.2 percent since April 12, a day before Starwood agreed to buy the company for $14.25 per share.
Reporting by Ankit Ajmera in Bengaluru; Editing by Anil D'Silva