Barratt Redrow merger response to challenging market

Barratt Developments plc has acquired Redrow plc for £2.5bn to create a new firm Barratt Redrow, following a series of “challenges faced by both companies in the housing market,” including drops in completions and revenue during the latter part of 2023.

The new firm is targeted to construct approximately 23,000 homes per year, with an associated turnover of £7bn. The deal represents a “combined market value” of £7.2bn and received “unanimous support from both companies’ boards and key stakeholders,” reportedly including Redrow’s founder, Steve Morgan, who holds a 16% stake.

Shareholders will vote on the deal in mid-May, with regulatory approval also required for it to conclude. Completion of the deal is expected in late 2024. The combined housebuilder will face continued challenges, particularly related to pressures on house prices experienced over the past year driven by the cost of living crisis and higher interest rates.

Highlighting the strategic benefits of the merger, Barratt stressed the complementary offerings of the two firms in its half-year results statement. Barratt reported a 28% decline in new home completions in the third and fourth quarters of 2023 compared to the previous year. However, CEO David Thomas remained optimistic, citing early signs of improvement in reservation rates and buyer sentiment since January, driven by expectations of lower interest rates and more competitive mortgage rates.

Thomas commented on the merger announcement:

“This is an exciting opportunity to bring together two highly complementary companies, creating an exceptional homebuilder in terms of quality, service and sustainability, able to build more of the high-quality homes this country needs.”

Matthew Pratt, CEO of Redrow plc, however enthused about the merger against this backdrop: “As with Barratt, Redrow’s 50-year success story is based on its people, products and supply chain partners. Together, we’ll be in a much better position to offer a broader range of high-quality and energy efficient homes to customers.”