In a typical “big fish eat small fish”-style deal, U.K.’s major homebuilder Barratt Developments plc (GB:BDEV) is set to snap up rival Redrow plc (GB:RDW) in a £2.52 billion deal. The board of directors of both companies have agreed to an all-stock acquisition, pending shareholder approval. Following the news, BDEV stock plunged more than 8% while RDW shares gained about 13% to hit a new 52-week high of 700p this morning.
Barratt Developments is a FTSE 100-listed company engaged in residential property development across England, Wales, and Scotland. Meanwhile, Redrow is listed on the FTSE 250 index and is a relatively smaller player in the residential construction market.
Here’s How the Two Will Benefit from the Deal
The new company will be named “Barratt Redrow plc,” with a projected turnover of more than £7 billion, net cash of £874 million, and a solid pipeline of 92,345 plots. The combined company will build more than 22,000 homes annually in the medium term, significantly higher than what Barratt could have built on a standalone basis in 2024. Barratt expects the acquisition to be accretive to earnings in the first year after the deal’s completion and add £90 million in cost savings on an annual run-rate basis by the end of the third year.
Per the terms of the deal, each Redrow shareholder will receive 1.44 new Barratt shares for every RDW share they hold. The share exchange reflects a 27% premium for Redrow shareholders based on the closing share price on February 6. Upon completion, existing Barratt shareholders will own about 67.2% of Barratt Redrow and the rest will be owned by existing Redrow shareholders. Also, Barratt’s current CEO, David Thomas, will lead the new company.
U.K.’s property and homebuilder market has witnessed a steady downfall in the post-pandemic era driven by persistent inflation and a high interest rate environment. Thomas believes that the underlying demand for Barratt’s homes remains strong despite mounting challenges. He added that the company witnessed improved consumer sentiment and reservation rates in January, backed by an anticipation of falling interest rates and lower mortgage prices. Barratt hopes to leverage the anticipated recovery in the home builder market through this acquisition.
Are Barratt Shares a Good Buy?
With eight Holds and one Sell rating, BDEV stock has a Hold consensus rating on TipRanks. It is important to note that all these ratings were given before the announcement of the acquisition. Based on these, the Barratt Developments plc share price target of 539.78p implies 10.3% upside potential from current levels.
