Barratt and Redrow have agreed to an all-share merger, with Barratt acquiring Redrow to form a new UK housebuilding powerhouse.
Barratt Developments shares were down 7% at the time of writing while Redrow shares surged 13%.
Under the terms of the merger, Redrow shareholders will receive 1.44 new Barratt shares for each Redrow share they own. This values Redrow at approximately £2.5 billion based on recent share prices, a 27% premium to Redrow’s share price on 6th February.
Post-merger, Redrow shareholders will own about 32.8% of the combined company, with Barratt shareholders owning 67.2%.
“The move is a seismic shift for the sector, reflecting not only the challenges which housebuilders have more recently faced in terms of the economic backdrop, but also a move to shore up the capabilities of two major players, with the new ‘Barratt Redrow’ company having aggregate revenues of GBP7.45 billion,” said interactive investor’s Richard Hunter.
The boards believe the merger will create an ‘exceptional UK homebuilder’ with complementary brands and geographic footprints to accelerate housing delivery.
Barratt estimates pre-tax cost synergies of at least £90 million by the end of year 3 post-merger, achieved through procurement savings and streamlining of functions. One-off costs to achieve these savings are estimated at £73 million. The merger is expected to be accretive to adjusted EPS in the first year after completion.
The deal was released alongside Redrow and Barratt Developments half-year results, both of which showed a sharp slowdown in completions and revenue during the period.
