Britain’s biggest homebuilder Barratt (BDEV.L) will buy Redrow (RDW.L) in an all-stock deal valuing its smaller rival at about 2.52 billion pounds ($3.18 billion), they said on Wednesday, aiming to capitalise on the fledgling recovery in the market.
This is the second consolidation in the sector in as many years after affordable-housing-focused builder Vistry (VTYV.L) bought rival Countryside for about 1.25 billion pounds in 2022.
The newest combination, to be renamed “Barratt Redrow”, aims to deliver more than 22,000 homes each year in the medium term, which is between 57 per cent and 63 per cent more than the 13,500 to 14,000 deliveries Barratt expects to deliver by itself in fiscal 2024.
Redrow’s shares, which have fallen about 30 per cent from their all-time highs in 2020, jumped 10 per cent in early trading on Wednesday, while Barratt’s stock fell nearly 4 per cent.
British housebuilders have struggled for the past couple of years as high interest rates dented demand and build costs rose. They have been cautious about the future as well, despite signs of stabilisation — including a rise in home prices last month — spurred by cheaper mortgage loans.
“Despite the challenging macroeconomic backdrop, underlying demand for our homes is strong,” Barratt CEO David Thomas, who will lead the combined company, said in a statement.
“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.”
Last month, Taylor Wimpey (TW.L) and Persimmon (PSN.L) expressed cautious optimism about such improvements but stopped short of a firm outlook, while smaller peer Crest Nicholson (CRST.L) warned of a challenging 2024.
Under the terms of the Barratt-Redrow deal, which is backed by the boards of both companies, each Redrow shareholder will get 1.44 new Barratt shares for each share they hold. Barratt’s shareholders will own about 67.2 per cent of the combined group.
Coalville-based Barratt expects the deal to add to earnings in the first year after the transaction closes and to save at least 90 million pounds on an annual run-rate basis by the end of the third year. ($1 = 0.7934 pounds)
