Bellway approaches Redrow in £1.3bn merger

Permalink: Bellway approaches Redrow in £1.3bn merger
by Kay Murchie

Property giant Bellway has approached rival Redrow with proposals for an all-share merger worth £1.3 billion. The deal would produce the country’s second-biggest housebuilder in the UK.

Last year’s merger of Taylor Woodrow and George Wimpey created the UK’s second-largest firm, however, this would be overtaken if Bellway and Redrow were to merge.

However, it is believed that the proposals have been broadly dismissed by Redrow and the companies are not in merger talks.

The deal, prompted by the impact of the credit crunch on business, is likely to send shockwaves through the building sector.

At Friday’s closing price, Bellway, with shares at 716½p, had a stock market value of £824 million while Redrow, at 263¼p, was valued at £421 million.

Both companies feel their value is not adequately reflected in their current share prices. Should the merger proceed, both companies could face complex discussions to decide their respective values within the proposed merged vehicle.

The news of the merger follows announcements from several housebuilders who are suffering as a result of the decline in property prices.

Last week, housebuilder Persimmon announced it is to stop building on new sites until market conditions improve, which could result in tens of thousands of job losses.

Persimmon said sales in the first four months of 2008 had declined 24%.

Furthermore, Taylor Wimpey warned that the fall in property prices is turning into a disaster for housebuilders.

John Watson, Bellway’s chief executive, recently announced that conditions in the housing sector were the worst for a long time.

Bellway posted a 3.9% fall in half-year pre-tax profits to £96.9 million with reservations to March 17 9% lower year-on-year.

Toscafund, the hedge fund, recently increased its stake in Redrow and Taylor Wimpey, which resulted in speculation that there are more prospects for consolidation in the medium-term.

Bellway is nearly double the size of its rival, however, Redrow has a larger land bank of 25,750 plots compared with Bellway’s 23,000 plots.