Barratt, a proactive investor, has made a significant move by acquiring Redrow (LON:RDW) in a deal worth £2.5 billion.
An important update has emerged within the housebuilding sector.
In a significant move, Barratt Developments (LON:BDEV) has finalised a deal to acquire Redrow PLC (LSE:RDW), a fellow housebuilder, for a staggering £2.52 billion.
Under the all-share agreement, Redrow shareholders will be entitled to receive 1.44 Barratt shares for each Redrow share they currently hold.
In their official statement, the companies have indicated that this would equate to a 27% premium compared to Redrow’s closing share price on Tuesday.
Once the process is finalised, the combined group will see Redrow shareholders retaining approximately 33% ownership, with Barratt shareholders holding around 67%.
The companies characterised the agreement as an “unparalleled and captivating prospect” to establish an outstanding UK homebuilding company.
According to Barratt, the consolidated entity has the potential to generate annual pre-tax cost synergies of at least £90 million by the end of the third year post-completion. It is projected that around 90% of these synergies will be achieved by the end of the second year.
It is anticipated that the one-time expenses associated with achieving these savings will add up to approximately £73 million.
Following the completion of the merger, it is anticipated that both Barratt and Redrow will experience an increase in their respective adjusted earnings per share within the first year, resulting in a positive impact on their financial performance.
Steve Morgan, the founder of Redrow, has given his endorsement to the deal.
The announcement coincided with Barratt’s release of their half-year results, which demonstrated a notable decrease in revenue of 33.5% to £1.85 billion from £2.78 billion.
A substantial decrease of 28.5% was observed in completions, resulting in a total of 6,171. Additionally, the adjusted pre-tax profit experienced a significant decline of 69.9%, amounting to £157.1 million.
There has been a significant decrease in the dividend, from 10.2p to 4.4p.
The FTSE 100 is anticipated to experience a slight increase at the opening.
Wednesday is likely to witness a modest rise in the opening of the FTSE 100, as Wall Street concluded on a positive note after a late rally. However, the Asian markets displayed a mixed performance.
According to spread betting companies, it is anticipated that the blue-chip index in London will experience a rise of approximately 7 points when trading commences. This comes after the index closed at 7,681.01 on Tuesday, having gained 68.15 points.
Closing on Tuesday in New York, the Dow Jones Industrial Average recorded a 0.4% rise, settling at 38,521.36. Simultaneously, the S&P 500 witnessed a 0.2% increase, and the Nasdaq Composite made a slight 0.1% advancement.
The initial attention will be directed towards the strategy update by J Sainsbury (LON:SBRY), the results from Barratt Developments, and the Halifax house price index in London.
Please refer to Proactive Investors UK for further information.