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An all-British deal between FTSE 100 companies is almost always preferable to a private equity or offshore takeover that weakens UK stock markets and the exchequer.
However, this is no reason to indiscriminately applaud Barratt’s acquisition of rival Redrow to create Britain’s largest housebuilder.
Bigger is not always better. Redrow investors will welcome the premium, although it should be noted that its shares are trading at a 30 per cent discount to 2020’s all-time highs.
Founder Steve Morgan’s 16 per cent stake would be worth around £400m if the deal goes through.
Home construction is a cyclical business and closely linked to the interest rate cycle.
Merger: Barratt Developments to buy FTSE100 builder Redrow for £2.5bn – biggest British housebuilding merger in 17 years
A combination of the pandemic, which saw constrained supply chains and the rapid jump in interest rates from artificially low levels to current borrowing costs, hit hard.
One can’t help but think that builders, so damaged by the financial crisis, which saw many smaller players go under, bail out or merge, have learned their lesson too well and have been too cautious.
The drop in house prices predicted by many has not occurred. Recent data shows mortgage approvals, the Nationwide Price Index and now the Halifax Monitor all rose 1.3 per cent in January. Everyone is in healthier territory.
Furthermore, there is a broad consensus that official interest rates have reached a maximum of 5.25 percent and the next step will be downwards.
Intense competition for home loans means there will be much better replacement mortgage solutions than anyone expected in the autumn of 2022 after the Truss tantrum.
Better deals should be offered in 2024 and 2025. Housing will also be a battleground in the elections.
Labour, with its promise to bombard planning regulations and reset targets, can only underpin the ambition, across all parties, to promise more new homes.
Barratt may be shrewdly buying capacity – the ability to build 22,000 homes a year on current projections – at the bottom of the market.
If the merged company has the bandwidth to properly manage the change, it may come to be seen as a smart deal.
Caution is required. The decision to find Redrow chief executive Matthew Pratt a job as head of the David Wilson Homes label and a seat on the board may seem sensible. Such job divisions rarely work.
One of the reasons the Conservatives found it so difficult to build housing and missed their targets is that the financial crisis wiped out many regional and smaller players.
With each merger there are capacity losses, jobs are eliminated to save costs, national coverage becomes more patchy and competition decreases.
The Barratt-Redrow agreement should not be exalted to the four winds.
Stock markets are often considered a predictor of economic health, and stock prices are among the components of the Leading U.S. Economic Index.
That’s why it’s hard to ignore the fact that the S&P 500, the broadest US stock market, and the Nasdaq hit new highs. It wasn’t meant to be like this.
The Federal Reserve’s monetary tightening, by belatedly addressing inflation, was aimed at squeezing points out of the US economy.
Consumers and businesses have ignored conventional wisdom and the United States defied expectations by growing 3.1 percent last year.
Projections of a slowdown in a buoyant labor market have proven wrong.
Corporate earnings, from Ford Motor Company to Uber and Silicon Valley, have surprised on the upside.
Why should we care?
The United States remains Britain’s largest trading partner and, surprisingly, the United Kingdom has a surplus against the Yankees. America’s prosperity should help our own.
The UK’s Big Four may be convinced that bank branches are a waste of time.
Sweden’s Handelsbanken has a different approach: discreet branches in many of our cities offer the banking relationship that businesses and consumers value.
In the last year, revenue rose to £918m and operating profits up 59 per cent to £476.4m.
Handelsbanken, like all banks, will have benefited from wider interest rate spreads. UK boss Mikael Sorensen hails the record results as a success for “our unique business model”.
Are British rivals listening?