Barratt Developments is to buy rival Redrow for £2.5bn in the biggest British housebuilding merger for 17 years.
The combined company, Barratt Redrow, will be the UK’s largest residential builder, capable of building 23,000 homes a year and exceeding £7bn in turnover.
The terms value founder Steve Morgan’s 16 per cent stake in Redrow at £400m.
As well as helping to speed up housebuilding, the partnership is expected to save London-listed builders £90m a year, despite a one-off cost of £73m.
It comes amid a recession as companies build fewer properties. Developers have noted that the market has improved as mortgage costs fall in anticipation of lower interest rates.
Construction giant: Barratt Developments will buy rival Redrow for £2.5bn in a deal that will create the UK’s largest residential developer, capable of building around 23,000 homes a year.
Barratt, the UK’s largest housebuilder, and Redrow said the deal provides flexibility to “respond to changing market conditions” and “resilience throughout the cycle”.
But hundreds of jobs are at risk as duplicate roles and office space could be cut.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘The economic winds have not been kind.
“Barratt and Redrow believe they will be stronger together, giving the combined company much greater leverage to capitalize on the structural housing need.”
The deal values Redrow at £2.5bn, a 27 per cent premium to its £2bn market capitalization the day before the merger.
Share at Redrow rose 14.8 per cent, or 88.5p, to 688.5p, while Barratt fell 5.5 per cent, or 29p, to 501p.
Morgan, which is the largest shareholder, backed the deal, the biggest in the sector since Taylor Woodrow bought George Wimpey for £2.5bn in 2007.
It is also the biggest deal since the UK property market slowed. It follows the £1.3bn merger of Vistry Group and Countryside in 2022.
Richard Hunter, head of markets at Interactive Investor, said: “The move marks a seismic shift for the sector, reflecting not only the challenges housebuilders have faced more recently in terms of the economic backdrop, but also a measure to shore up the capabilities of two important actors.’
According to documents released yesterday, about nine offices could be closed and 10 percent of full-time jobs could be eliminated.
Barratt has 6,730 employees and Redrow has 2,200, meaning there could be up to 890 jobs affected.
Redrow shareholders will own 32.8 per cent of the combined group and Barratt investors will own the remaining 67.2 per cent.
Barratt chief executive David Thomas will lead the business, while Redrow group chief executive Matthew Pratt will continue to lead the brand.