(Alliance News) - Barratt Developments PLC on Wednesday said it agreed the terms of an all-share takeover offer for smaller peer Redrow PLC, valuing Redrow at GBP2.52 billion.
This was alongside both housebuilders reporting falling profit in their half-year periods that ended December 31.
Barratt lost 5.2% to 502.00p each at the London open on Wednesday. The FTSE 100 stock has a market capitalisation of GBP4.88 billion. Redrow jumped 14% to 684.00p each, giving it a GBP2.24 billion market cap.
Under the takeover offer from Barratt, each Redrow shareholder will receive 1.44 new Barratt shares for each Redrow share. Following completion, shareholders in Redrow will hold around 33% of the combined group, while Barratt shareholders will hold around 67%.
Directors of both Redrow and Barratt have unanimously recommended that shareholders vote in favour of the scheme at the court and general meetings.
The combined group will be renamed Barratt Redrow PLC upon completion.
"We believe that the combination will create an exceptional UK housebuilder in terms of quality, service and sustainability, delivering excellence and driving innovation for customers, employees, sub-contractors and the supply chain," said Barratt.
"The combination will bring together two companies with highly complementary geographic footprints and three highly respected brands - Barratt Homes, David Wilson Homes and Redrow - with which to accelerate the delivery of much-needed housing across the UK and provide the opportunity for shareholders to participate in future value creation in the combined group."
Meanwhile, Barratt reported half-year revenue fell 34% to GBP1.85 billion from GBP2.78 billion a year earlier, while pretax profit plummeted 70% to GBP157.1 million from GBP521.5 million.
In response to the lower profit, Barratt slashed its interim dividend by more than half to 4.4 pence from 10.2p.
Chief Executive David Thomas said: "During the period, we have been rigorous in carefully controlling our build activity, managing our costs, being highly selective in land buying, and driving revenue. These clear priorities have helped maintain the strength of our balance sheet despite lower levels of profitability and ensure we remain resilient and responsive through the cycle."
Home completions in the first half fell 28% to 6,171 from 8,626 a year earlier.
Looking ahead, Barratt said: "Whilst our full year out-turn remains dependent on how the market evolves through the spring selling season, based on the encouraging uplift in reservation activity since the start of January, we now expect to deliver total home completions of between 13,500 to 14,000 in [financial 2024], including [around] 650 [join-venture] completions."
For its part, Redrow said half-year revenue fell 27% to GBP756 million from GBP1.03 billion, with pretax profit more than halving to GBP84 million from GBP198 million and prompting it to halving its interim dividend to 5.0p from 10.0p.
Redrow blamed the results on a "subdued housing market" in the UK.
For the full year, Redrow expects to achieve revenue between GBP1.65 billion and GBP1.70 billion, as well as an underlying pretax profit between GBP180 million and GBP200 million.
It added that, as reported in November, due to the subdued autumn housing market it expects the 2024 results to be towards the lower end of the range.
Chief Executive Matthew Pratt said: "In recent weeks the housing market has shown signs of improvement, with increasing mortgage approvals and reduced mortgage rates with greater competition amongst lenders. This in turn has improved homebuyer confidence and raised the prospects of a return to a more stable sales market."
By Greg Rosenvinge, Alliance News senior reporter
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Barratt Developments (BDEV)
Redrow (RDW)