Paying over the odds for a bigger house can be a risky move. Yet UK housebuilder Barratt Developments’ (BDEV.L) 2.5 billion pound ($3 billion) all-share acquisition of rival Redrow (RDW.L) seems to do just that. The 4.7 billion pound group is paying a 27% premium to end-Tuesday prices, worth around 540 million pounds. Its 67% share of the merger’s 90 million pounds of cost synergies, however, are worth just under 500 million pounds on a taxed and capitalised basis, Breakingviews calculations suggest. Barratt’s investors aren’t thrilled: the builder’s shares dropped 8% on Wednesday morning.
For both companies there may be safety in numbers – Redrow and Barratt’s 2024 top lines are set to drop by a fifth year-on-year, according to LSEG data. An anticipated drop in UK interest rates could help drive sales across the merged company. But beyond that the deal is about Barratt selling Redrow’s more luxury homes to affluent buyers, alongside its own offering of first and second-time buyer dwellings. If that works, the deal could create a revenue boost as well as cost savings. Still, with Redrow shares only up 13%, neither set of shareholders seem overly excited to exchange. (By Aimee Donnellan)
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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own)
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