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Barratt has reached a £2.5bn deal to buy rival Redrow, creating the UK’s largest housebuilder, as developers weather the property market downturn.
The boards of both FTSE housebuilders have recommended the all-share combination, which they said would bring together complementary brands and achieve significant cost savings.
The offer by Barratt comes as both companies navigate a brutal downturn in new home sales caused by higher mortgage rates squeezing prospective buyers.
Housebuilders across the country have cut costs and slowed land buying as their profit and output plummet. Wednesday’s deal marks the first move to consolidate by two big national developers since the market soured. Vistry struck a £1.25bn deal to buy Countryside in 2022.
Barratt chief executive David Thomas, who would lead the combined group, said the deal would “bring together two highly complementary companies, creating an exceptional homebuilder”.
Barratt shares fell 4 per cent in early trading, while Redrow’s climbed 11 per cent.
The companies said the Redrow brand, which focuses on larger, high-quality homes for more affluent buyers, would continue as part of Barratt, which already operates the David Wilson Homes brand, which it bought in 2007, alongside Barratt Homes. Redrow chief executive Matthew Pratt will continue to lead the brand and join the board.
The combined group would be renamed Barratt Redrow and build roughly 22,000 homes a year, based on the two companies’ current performance. The companies said they expected annual cost savings of £90mn, with the combined group having revenues of £7.5bn.
Steve Morgan, who founded Redrow as a small contractor focused on drainage in 1974 and is still its largest shareholder with a 16 per cent stake, has agreed to support the deal. Morgan said he hoped the larger group would “accelerate the delivery of much-needed homes across the UK”.
A major donor to the Tories under Boris Johnson, Morgan attacked the government in an interview last spring over concessions to anti-development MPs, saying “it’s like the government wants to destroy the industry”.
The terms of the deal, which still have to be approved by shareholders, offer a 27 per cent premium over Redrow’s Tuesday closing share price.
“The all-share nature of the deal is astute, retaining a robust balance sheet,” said Investec analyst Aynsley Lammin, adding that the companies were “complementary in terms of geographies and product mix”.
Redrow last summer said it would close two of its 14 regional divisions and cut at least 100 jobs to “manage overhead” as sales declined.
Barratt on Wednesday announced its output fell 28 per cent to 6,171 homes in the six months to the end of December. Its pre-tax profit dropped 80 per cent to £95mn, due in part to a one-off additional cost of £62mn related to building safety at “legacy properties”.
Redrow also reported a major slowdown in trading, but both companies said sales had improved in the first weeks of the new year. The deal is expected to close in the second half of the year.
