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(Alliance News) - Barratt Developments PLC will be hoping the timing of its combination with Redrow PLC is good after the housebuilding industry looks to pick itself "off the floor following a difficult few years", an analyst on Monday said.
On Monday, Barratt said it expects to finalise the acquisition of fellow housebuilder Redrow "later this week", despite a limited concern raised by the UK's competition regulator.
Leicestershire-based Barratt struck the GBP2.52 billion deal with Flintshire, Wales-based Redrow in February.
The merger has since come under scrutiny from the UK's Competition & Market Authority, which launched a Phase 1 investigation in March.
Earlier this month, the CMA stopped short of pursuing a Phase 2 investigation after concluding that the combination only has a "high combined share" in just one local area, which is Whitchurch, Shropshire.
The CMA said the deal does not raise UK-wide competition concerns.
To remove uncertainties, Barratt has decided to waive the CMA condition, allowing the combination to proceed.
"This removes uncertainty for the employees, supply chain and wider stakeholder groups of both businesses," Barratt and Redrow said in a joint statement.
In accordance with the CMA's standard practice and following completion, Barratt and Redrow expect the CMA to impose an initial enforcement order, preventing any action which might prejudice the CMA's process.
As a result of this, whilst integration planning can continue, Barratt and Redrow would be prevented from integrating their two businesses,
Barratt and Redow said they are "continuing to engage with the CMA with the objective of agreeing suitable undertakings which would address the CMA's limited concerns and avoid the need for a reference to a full Phase 2 investigation".
Barratt confirmed that its intention remains to substantially complete the implementation of an integration plan within 18 months of completion, with synergies expected to be realised fully within three years following completion.
Shares in Barratt Developments were up 0.7% to 539.65 pence in London on Monday morning. Redrow were up 2.1% at 776.78p.
AJ Bell's Investment Director Russ Mould said the deal will create a new leader in the UK housebuilding space.
"The all-share deal should allow Barratt to replenish its landbank – a necessary precondition to ramping up volumes – with prices in the open market not having retrenched as much as might be expected in the current cycle," he noted.
Mould said Barratt will hope its timing is "good as the industry looks to pick itself off the floor following a difficult few years marred by a weak property market and rising interest rates".
He pointed out that management will be buoyed by figures from Rightmove PLC on Monday showing a big increase in enquiries on homes for sale since the Bank of England cut rates at the beginning of this month.
He thinks speculation could now build over whether either of Barratt’s main rivals – Taylor Wimpey PLC and Persimmon PLC might "pursue their own deal in response".
By Jeremy Cutler, Alliance News reporter
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