Barratt Developments is to buy rival Redrow for £2.5billion in the biggest British housebuilding merger for 17 years.
The combined firm – Barratt Redrow – will be the UK’s largest residential builder, able to make 23,000 homes a year and exceed £7billion in turnover.
The terms value the 16 per cent stake held in Redrow by its founder Steve Morgan at £400million.
As well as helping to speed up the construction of homes, the tie-up is forecast to save the London-listed builders £90million a year, despite a one-off cost of £73million.
It comes amid a downturn as firms build fewer properties. Developers have signalled the market has improved as mortgage costs fall in expectation of lower interest rates.
Construction giant: Barratt Developments is to buy rival Redrow for £2.5bn in a deal which will create the UK’s largest residential developer, capable 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 through the cycle’.
But hundreds of jobs are at risk as duplicate roles and office space could be slashed.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘The economic winds have not been kind.
‘Barratt and Redrow believe they’ll be stronger together, giving the combined company much bigger clout to capitalise on the structural need for housing.’
The deal values Redrow at £2.5billion, a 27 per cent premium to its £2billion market capitalisation the day before the tie-up.
Shares in Redrow surged 14.8 per cent, or 88.5p, to 688.5p while Barratt fell 5.5 per cent, or 29p, to 501p.
Morgan, who is the largest shareholder, backed the deal – the biggest in the sector since Taylor Woodrow bought George Wimpey for £2.5billion in 2007.
It is also the most significant deal since the UK housing market slowed. It follows the £1.3billion merger of Vistry Group and Countryside in 2022.
Richard Hunter, head of markets at Interactive Investor, said: ‘The move is a seismic shift for the sector, reflecting not only the challenges which housebuilders have more recently faced in terms of the economic backdrop, but also a move to shore up the capabilities of two major players.’
According to documents published yesterday, around nine offices could be closed and 10 per cent of full-time jobs cut.
Barratt has 6,730 staff and Redrow has 2,200, meaning there could be as many as 890 jobs affected.
Redrow shareholders will own 32.8 per cent of the combined group and Barratt investors will hold 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 run the brand.