One month for £1bn Bovis deal to “get real”

One month for £1bn Bovis deal to “get real”

The biggest merger deal between listed housebuilders since the creation of Taylor Wimpey now has a month until ‘time out’.

Under City takeover rules, Galliford Try and Redrow get until 5pm on April 9 to announce a firm intention to make a bid for Bovis Homes – with its landbank valued at around £1bn – or walk away.

The Bovis board has rejected initial offers from both as not reflecting the underlying value of the business.

But, in a statement, Bovis said: “The decision to reject the proposals was communicated to the two parties. Redrow subsequently indicated that it was not willing to improve the terms of its proposal and discussions were terminated. Discussions with Galliford Try are ongoing.”

Redrow – which made its initial approach in February when the Bovis share price was at £7.74 – won’t be going away, maintaining that combination represents a ‘compelling opportunity’.

Any merger would create one of Britain’s biggest housebuilders and the largest such deal done since the George Wimpey and Taylor Woodrow combined in 2007.

Such a merger could mean major cost savings, with the sector exposed to skills shortages and shaky investor confidence as the UK prepares for Brexit.

But demand for new homes is still strong in a market that has suffered from chronic supply shortages for years.

In its pitch, FTSE 250 firm Galliford highlighted how its housebuilding business could complement fellow FTSE 250 member Bovis.

Galliford has a regeneration arm; the housebuilding group Linden Homes, which builds around 3,000 homes a year and a construction business.

The current spread of Bovis’s building activity is seen as a good addition to the focus by Linden Homes on the south and south-east of England.

An all-share merger with Bovis, as proposed, would create a housebuilder with national scale and geographic coverage through the combination of the sixth and eighth largest UK housebuilders by completions.

The offers come amid upheaval at Bovis.

With shares underperforming the rest of the sector, Bovis put out a profit warning in January when chief executive David Ritchie departed.

In the interim, finance director Earl Sibley stepped up to acting chief executive, with the board giving the go-ahead to search for a permanent successor – a process which is expected to take several months.

Investors were told Bovis would complete about 180 fewer homes than expected for the year, with between 3,950 and 4,000 completions rather than the 4,170 forecast by the City.

The squeeze on shares increased last month with Bovis confirming a £7m payment to repair poorly built new homes, apologising to customers and agreeing to compensation.

Latest data shows in Bovis closed at 828p on Friday (March 10) and still down 19% since the Brexit vote.

Shares in Galliford, however, have seen off a post-Brexit-vote slump to go 19% higher over the same period.

Redrow’s shares rallied to a relatively quick turnaround and are up almost 17%.

By Monday, Bovis shares rose 7.9% to 893p early on Monday morning while Redrow and Galliford Try were up slightly.

The Galliford offer is reported at 886p per share – to value its rival at £1.19bn – with the combined group split 52.25% to Galliford Try shareholders and 47.75% to Bovis shareholders.

Redrow’s offer is reported as worth the equivalent of 814p per Bovis share out of cash, new Redrow shares and dividend payments – with Bovis shareholders owning approximately 32.4% of the merged group.

Bovis has been the subject of takeover speculation for some time.

Much of that speculation raises questions about whether the Bovis land bank – valued at £1bn and holding consented plots for 18,700 homes – is worth cost of acquisition, given the relative ease by which land can be bought directly in the current market.

But that bank is strong in the south and a buy allows Galliford – with its strength in the west, south-west, and east Midlands – access.

Should Galliford win over Bovis with a revised bid succeeded, market analysts expect the combination to create a top-five UK housebuilder with a market value of about £2.5bn and output of more than 6,700 homes a year.

With net cash reported at £39m, Bovis is not under pressure to get a deal done.

In January, Redrow chairman Steve Morgan rejected hoarding accusations linking land banking to profit maximisation, saying the present planning system was the biggest barrier to house building given the current one to two yea time frame moving from outline to detailed permission.

Redrow has some 26,000 plots in its landbank with Morgan saying that at one-third of them the firm can’t get on site.

The government’s Housing White Paper proposed forcing housebuilders to surrender land if construction had not started two years after planning permission was granted – against the current three year rule.

Morgan said that if the time was counted from the grant of outline permission it would make many projects “impossible”.

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