Redrow takeover possibilities as Vistry shows merits of housebuilder consolidation

News Analysis 7 December

Redrow takeover possibilities as Vistry shows merits of housebuilder consolidation

This is a redacted version of Dealreporter’s daily Morning Flash column*. The full version is available here.

Vistry [LON:VTY] completed its merger with housebuilding peer Countryside Partnerships last month, and it’s the kind of combination sector peers might want to try and mimic.

Vistry’s cash and shares acquisition of Countryside, valued at GBP 1.3bn, will help it lean into a housing downturn which began this year and shows no sign of letting up.

And if peers are looking at similar deals to bolster their own performance, Redrow [LON:RDW] is a name worth watching for potential takeover interest.

The UK’s largest housebuilders are set to see revenue decline in the region of 4% over the next couple of years, according to data provided by Fidessa and compiled by FactSet – a factor which could spur industry consolidation.

Vistry’s acquisition of Countryside means it is expected to be the fastest growing of the large cap peer group over the two years from 2021 (reported) to 2023 (estimated). Organic growth looks like it will be very hard to come by over the next couple of years. And deals funded largely with the bidder’s paper, as Vistry’s was, represents one means of expanding through a downturn while maintaining a conservative balance sheet position.

Redrow looks like it could be the next logical sector target. It was linked to takeover interest from Persimmon [LON:PSN], Taylor Wimpey [LON:TW.] and real estate investor Blackstone [NYSE:BX] in August last year. Founder Steve Morgan, through investment vehicle Bridgemere, owns around 16% of the business and mulled making a takeover offer for the business himself back in 2012 alongside activist investor Toscafund and financial sponsor Penta Capital.

Morgan, who was also the executive chairman of the business until 2019, held around 40% of the business back then but has since reduced his stake. Morgan’s last major stake reduction was in December 2019 when Redrow’s shares traded at around 700 pence per share. The stock closed yesterday at 463 pence, giving Redrow a GBP 1.5bn market cap. While 700 pence would represent a more-than 50% premium to Redrow’s latest stock price, Morgan might be willing to sell the stake at a lower level in order to complete an exit from the business or benefit from synergies in a potential merger scenario.

With industry revenue and profitability under pressure in the years ahead, defensive dealmaking – and more deals like Vistry’s cash and shares combination with Countryside – could be one way for the industry to ride out the storm. If that’s the case, expect housebuilding heavyweights to see if the numbers stack up for a move on Redrow.

*Analysts from Dealreporter pick out hints of future material developments in merger arb and special situations by combing through transcripts, stock exchange filings, analyst reports and news stories. This raw data is combined with proprietary insights and commentary to produce an exclusive report that offers short and long-term actionable ideas. If you have any ideas for coverage please email EuropeFlashDR@iongroup.com.

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