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Barratt Developments has won the fiercely contested takeover battle for its smaller rival Wilson Bowden with a £2.2bn agreed bid that will create the UK's biggest homebuilder.

The deal, a record for the sector, will mean a windfall of about £700m in cash and shares for Wilson Bowden's chairman and co-founder David Wilson and his family, who together own about 37% of the company.

The auction process was sparked by Mr Wilson's announcement in July that he was reviewing his family's stake. The combined group will have a 12% market share, ahead of Persimmon, and the deal is likely to catapult it into the FTSE 100.

Barratt beat stiff competition from other bidders, including a consortium led by the Scottish billionaire Sir Tom Hunter, which is thought to have been backed by the private equity arm of HBOS. George Wimpey, another builder, also made it to the final stages of the auction.

Barratt will pay 950p in cash and 1.0647 new Barratt shares for each Wilson Bowden share, valuing Wilson Bowden shares at £22.45 each.

Mark Clare, who took over as Barratt's chief executive in October, described the acquisition as "outstanding". He said: "It creates a powerhouse for organic growth going forward. This company will lead the sector."

Evolution Securities analyst Simon Brown said: "This is a coup for Mark Clare ... who has an ambition to drive Barratt to the forefront of UK housing, and with this deal he will succeed."

Barratt has secured irrevocable acceptances from investors holding 37.7% of the shares - Mr Wilson and his family, and Wilson Bowden's directors - and any counter-offer would have to be 10% higher than Barratt's agreed bid. Wilson Bowden shares fell 38p to £22.75 on news of the agreed bid.

The acquisition gives Barratt the David Wilson luxury homes brand, with an average sale price of £203,000, and while Barratt mainly operates in the north and south of England, Wilson Bowden focuses on the Midlands. Barratt has pencilled in synergies of at least £45m from removing overlap between the two businesses and increased purchasing power, while it estimates integrating the two companies will lead to one-off costs of £35m.

Mr Clare said there will "inevitably" be some job losses, but he refused to give details. He praised Wilson Bowden's management but said Barratt had not decided yet who would stay on. The two companies employ a total of 7,500 people.

Original story from Guardian Business.

Labels: Barratt Developments, Geroge Wimpey, Housing market, property prices, uk housing, Wilson Bowden

The stock market value of British housebuilders has plunged by £11.34 billion in just 12 months and is set to fall further after two investment banks warned today the housing market downturn will descend to levels last seen in the early 1990s.

Barratt Developments emerged as the sector's hardest hit company for the second day, after its share slumped by 26 per cent.

Barratt, which is now worth just £300 million but has debts of £1.7 billion after its acquistion of Wilson Bowden last year, is expected to seek emergency funding, possibly through a debt-for-equity swap.

Barratt is now worth less than a tenth of its peak stock market value.
Taylor Wimpey, the UK's third largest builder by volume and the result of the combination of Taylor Woodrow and George Wimpey, also plummeted by 20 per cent.

The losses compounded heavy share price falls yesterday, which wiped £400 million of the market value of the builders. Since last June, the housebuilding sector, then worth £15 billion, has seen its shares plunge by 76 per cent.

Shares in Persimmon, the last remaining housebuilder in the FTSE 100, were also down 9 per cent in early trading to 353p, their lowest point for five years. Persimmon faces ejection from the FTSE later today.

Berkeley Group shares also slid 9 per cent to 666p after Goldman Sachs reduced its recommendation on the UK housebuilder to "sell" from "neutral" and dramatically slashed its target price from 819.9p to 582.3p.

Analysts at Merrill Lynch said: "The early 1990s housing market has increasing relevance as a comparator."

They added: "There is growing evidence of consumers how behaving in a manner similar to that seen in the early 1990s, in that concerns over job security and falling house prices are leading to a reluctance to make a house purchase."

Merrill Lynch downgraded six housebuilders in the sector - cutting Barratt Developments, Bellway, Berkeley, Galliford Try and Redrow from "neutral" to "underperform", while Persimmon was moved to "neutral" from "buy", traders said.

There are fears that many housebuilders will be forced to make dramatic writedowns. In the early 1990s, housebuilders wrote down 30 per cent of their value - about £1.3 billion - and many of them needed more than one writedown before their net asset value stabilised.

The sector has been squeezed by banks tightening up on mortgage lending following the credit crunch, hitting the housing market. Many builders have put projects on hold, as willing buyers have dried up, and are laying off staff, while concerns are mounting in the City that many will have to ask shareholders for cash to strengthen their finances.

Housebuilders have also become a target for “short-sellers” who hope to profit from falling share prices. According toresearch from Data Explorers, which monitors short positions in the market, more than 23 per cent of Bovis shares are on loan with “short” investors, followed by 19 per cent for Persimmon and almost 18 per cent for Redrow.

Latest figures from the Royal Institution of Chartered Surveyors, out yesterday, said agents sold an average of just 17.4 properties each during the three months to the end of May, the lowest figure since it began collecting data in 1978.

Merrill Lynch has turned its focus on unemployment levels saying that they will be critical to determining consumer confidence and housing transaction levels, as was the case in the early 1990s recession. The broker suspects that rising unemployment will put additional pressure on housing transaction volumes.

It believes that there will be 10 per cent fewer house sales than last year and that prices will fall by 10 per cent.

"We believe we have gone beyond the tipping point and are now clearly seeing a UK housing market being squeezed on opposing fronts - by a lack both of willing lenders, as well as willing purchasers," the bank wrote.

It suggests that housebuilders are entering a prolonged period of underperformance, with a downturn likely to persist over the next three years.

"We are inclined to believe that if 1988-89 corresponds to 2007-08, than 1990-91 would correspond to 2009-10," Merrill Lynch said.

After the early 1990s recession, house prices did not start to recover until 1994.

Original Story from Times Business Online.

Labels: Barratt Developments, Berkeley Group, House market, Housebuilders, Merill Lynch, Persimmon, property development, RCIS, Redrow, Taylor Wimpey, uk housing, Wilson Bowden