The company said last month's $15 per share unsolicited takeover offer from major stockholder Holland Ware "significantly undervalues" Forestar. Based on the company's outstanding shares as of Oct. 31, 2008, the deal would be worth about $535.5 million.

Shares of Forestar, which has hired legal and financial advisers in the matter, fell 47 cents, or 5.1 percent, to $8.82 in morning trading.

At the same time, the company said it aims to generate significant cash flow by selling some 175,000 acres of timberland, cut debt by about $150 million and buy back up to 20 percent of its outstanding shares.

At the end of the third quarter, Forestar had about 35.8 million shares outstanding.

On Nov. 20, 2008, shares closed at $2.95, pennies above its 52-week low, before climbing in January to a range of $7.80 to $12.49.