Barratt to take over Redrow in £2.5bn all-share deal

(Sharecast News) - Britain's biggest housebuilder Barratt said it had agreed an all-share takeover of smaller rival Redrow valuing the latter at £2.5bn.

Barratt will control the merged group - to be renamed Barratt Redrow - with a 67.2% stake and Redrow shareholders keeping the remaining 32.8%.

Redrow investors will receive 1.44 new Barratt shares for their own stock. The terms also imply a premium of 27.2% to the closing price per Redrow Share of 600p on February 6.

Barratt said the takeover could realise pre-tax cost synergies of at least £90m on an annual run-rate basis by the end of the third year after completion, with around 90% delivered by the end of the second year, although there was no mention of projected job losses.

The combined group will have a turnover of more than £7bn, and a pipeline of 92,300 homes. Barratt chair Caroline Silver will head up the combined board. Current Redrow chief executive, Matthew Pratt, will stay as chief executive officer of Redrow exclusively.

Both companies also released half-year results alongside the takeover announcement. Barratt slashed its dividend as pre-tax profits plunged 81% to £95.2m amid the surge in borrowing costs last year that hammered demand for homes. The interim dividend was cut by 57% to 4.4p a share.

Forward sales at the end of January fell to 8,760 homes from 10,854 a year earlier at a value of £2.26bn, down from £2.66bn in 2023.

Redrow told a similar tale, with profits more than halved to £84m from £198m a year ago. The dividend was halved to 5p a share.

MARKETS IMPROVING?

"In recent weeks the housing market has shown signs of improvement, with increasing mortgage approvals and reduced mortgage rates with greater competition amongst lenders. This in turn has improved homebuyer confidence and raised the prospects of a return to a more stable sales market," said chief executive Matthew Pratt.

AJ Bell investment director Russ Mould noted that the merged business will be financially robust with more than £800m of net cash on the balance sheet which "should underpin generous dividends".

"The deal has logic for Barratt as Redrow has consistently traded at a discount to much of the sector and is well diversified across different parts of the UK - apart from the London market which it exited a few years ago. It also doesn't seem to have major skeletons in the cupboard around build quality or corporate governance like some of its peer group," he said.

"Redrow's management is fairly well regarded so it may raise some eyebrows that the board of the combined entity is set to be almost entirely dominated by Barratt directors."

"The fact Redrow founder Steve Morgan is on board with the deal is significant although whether an increasingly interventionist Competition and Markets Authority will want to look at the deal, given Barratt is already among the country's highest volume housebuilders, is open to question.

"Putting the emphasis on how this deal can help deliver the homes the country needs could be seen as an attempt to win over the regulator and politicians."

Reporting by Frank Prenesti for Sharecast.com