UDC Homes Inc. must radically restructure its finances in the next six months and the Tempe homebuilder is negotiating with potential investors to do so, analysts and company officials say.

Richard Kraemer, UDC's president and CEO, says the company's complex financial structure and leverage are a concern, and the company is holding preliminary discussions with several third parties about a possible investment or sale of assets.

Analysts say the homebuilder needs more than $100 million to buy out its prime preferred shares that are draining on earnings per share because of their dividend payments.

UDC hired investment banking firm Donaldson, Lufkin & Jenrette last week to handle its investment negotiations. The homebuilder could merge with another company or be bought out by an investor. It's possible the new investors could take majority control away from the current board, analysts say.

Officials at UDC and at Donaldson, Lufkin declined to comment on with who the homebuilder is negotiating.

"UDC has a precarious financial structure," says Lawrence Horan, an analyst with Prudential Securities, which recently downgraded the company's stock from "hold" to "sell."

"It is quite clear that UDC's financials need a major reworking," says Gregory Gieber, an analyst with Smith Barney,...