Britain’s largest housebuilder Barratt Developments has revealed a surprise all-share merger deal for smaller rival Redrow, in a move that values the latter at £2.5 billion.
The pair said the agreement, which sees each Redrow shareholder get 1.44 new Barratt shares for each Redrow share, would accelerate “the delivery of the homes this country needs”.
The major tie-up was revealed alongside separate updates from both firms that showed how tough market conditions, such as soaring mortgage costs and high interest rates, hurt sales and profits last year. But they also pointed to recent signs of improvement.
A merger between Barratt, valued at £5.2 billion as at last night’s share price, with Redrow would bring together groups that collectively have a pipeline of 92,345 plots and the capacity to build in excess of 22,000 homes per year in the medium term.
Shares in the former lost more than 6%, or 36.4p to 493.6p earlier, while Redrow shot up 84p, or 14% to 684p, following the announcement.
Barratt boss David Thomas, who will lead the group, said it would comprise Barratt, popular with first time buyers, David Wilson Homes which often serves larger families, and premium builder Redrow.
He added that the the companies have a "very big focus on quality, service and sustainability". Redrow’s Matthew Pratt who will be chief executive of that business and group executive director, told the Evening Standard that “customers are going to get a wider range of houses and price points”.
The proposal for what will be called Barratt Redrow has been recommended by both boards, and has the support of Steve Morgan, who is the largest Redrow shareholder, with a 16% stake worth around £360 million currently in the company he founded in 1974. That value would rise to around £400 million on paper if the deal completes based on today’s prices.
Morgan said he is confident that the combination will “create a standout home builder for the future and accelerate the delivery of much needed homes across the UK”.
in excess of 22,000
The number of homes per year in the medium term the pair could deliver
The number of homes per year in the medium term the pair could deliver
Neil Wilson, chief market analyst at Finalto said: “A chill wind has been blowing over the housebuilders - better to huddle together for warmth.”
Figures from Barratt today reveal first half revenues tumbled 33.5% to £1.85 billion and pre-tax profit dropped to £95.2 million from £501.5 million. At Redrow the company pointed to the “subdued housing market” as it reported that revenue was £275 million lower at £756 million and pre-tax profits fell to £84 million from £198 million.
But in encouraging comments, Thomas said: “Since the start of January, we have seen early signs of improvement in both reservation rates and buyer sentiment, helped by expectations of lower interest rates and the introduction of more competitive mortgage rates.”
Pratt said there have been signs of improvement, “with increasing mortgage approvals and reduced mortgage rates with greater competition amongst lenders”.
Barratt is being advised by UBS and Morgan Stanley, and Barclays and Peel Hunt are working with Redrow.
