(Reuters) - Tri Pointe Homes Inc (>> Tri Pointe Homes Inc) is buying Weyerhaeuser Co's (>> Weyerhaeuser Company) homebuilding division in a $2.7 billion deal that will give it access to developed land in key markets such as California and Texas and make it one of the 10 biggest U.S. homebuilders.

Weyerhaeuser, whose shareholders will control Tri Pointe after the deal, had been looking to get rid of its homebuilding unit as it focuses on its core timber business.

Tri Pointe said its land assets would jump more than 10-fold after the deal, giving it nine years' worth of lot supply.

That would be more than the average of 7.4 years for the top five U.S. homebuilders, which include D.R. Horton Inc (>> D.R. Horton, Inc.), PulteGroup Inc (>> PulteGroup, Inc.) and Lennar Corp (>> Lennar Corporation), according to data released by Tri Pointe.

Shares of Tri Pointe rose as much as 16 percent in early trading, while Weyerhaeuser shares were up 1.5 percent.

Tri Pointe's existing management, including Chief Executive Officer Doug Bauer, will run the combined entity. Barry Sternlicht, whose Starwood Capital Group LLC owned a 38 percent stake in Tri Pointe as of March, will continue as chairman.

"The combined operations of both companies will give the new Tri Pointe ... a stronger and deeper California market position, a relatively high average-selling-price product line (and) land positions and brand recognition in the nation's most attractive markets," Bauer said on a conference call with analysts.

Weyerhaeuser said in June that the "improving fundamentals" of the U.S. housing market made it a prudent time to explore strategic options for its housing business.

M&A activity picked up in 2013 among U.S. homebuilders, which have been struggling to meet burgeoning demand for new homes due to a shortage of land ready to build on.

Rather than wait for developers to turn raw land into lots - a process that takes two to five years - smaller builders such as Ryland Group Inc (>> The Ryland Group, Inc.) and Meritage Homes Corp (>> Meritage Homes Corp) are finding it easier to buy companies that have access to land in key areas.

"What we're seeing is guys that are really looking for land opportunity and that's the big deal in the housing space today - finding land that is still attractively priced," Williams Financial Group analyst David Williams said.

STRONG LAND BANK

Tri Pointe said it would control about 30,000 lots after the deal, more than 16,000 of which are in California. The company currently has about 2,700 lots in the United States.

The deal will also bring brands such as Pardee Homes, Trendmaker Homes and Maracay Homes under the Tri Pointe umbrella.

Williams Financial Group's David Williams said Tri Pointe's strategy to expand via acquisitions makes sense in the current environment as good land deals are hard to come by for a new company.

"If you want to take advantage of what's going on in a market, the most efficient and fast way to do that is to pick up a builder," he said.

Irvine, California-based Tri Pointe went public in January and had a market capitalization of about $500 million as of Friday. It builds houses in California and Colorado for between $300,000 and $1.5 million.

Weyerhaeuser and Tri Pointe are using a deal structure known as Reverse Morris Trust - a transaction that allows a parent company to sell its unit in a tax-efficient manner.

In that structure, a company spins off a unit that it wants to divest and that unit merges with a smaller company, but the smaller company runs the combined entity.

Weyerhaeuser said its shareholders will own 80.5 percent of the combined company after the deal is completed. They will receive about $2 billion in Tri Pointe's stock, based on Tri Pointe's Friday close of $15.38.

The Weyerhaeuser unit, Weyerhaeuser Real Estate Co (WRECO), will also pay $700 million in cash to its parent.

Weyerhaeuser said some assets of WRECO are excluded from the deal, which is expected to close by the end of the second quarter of 2014.

Deutsche Bank Securities is the financial adviser to Tri Pointe and Gibson, Dunn & Crutcher LLP is the legal adviser.

Sources close to the matter told Reuters on Sunday that Tri Pointe was nearing a deal to buy WRECO for about $2.7 billion.

Shares of Tri Pointe have risen 9 percent since Reuters first reported on October 21 that it was in advanced talks to buy the Weyerhaeuser unit.

They were up 7 percent at $16.52 in late morning trading on the New York Stock Exchange. Weyerhaeuser's stock was nearly flat at $30.35.

(Editing by Maju Samuel and Saumyadeb Chakrabarty)

By Sagarika Jaisinghani