Barratt sinks and Redrow jumps after £2.5bn megamerger announced

Barratt was one of the biggest fallers with its share price cratering over nine per cent this morning, as its move to create the UK’s biggest housebuilder failed to impress.

Shares in Barratt Developments sank by over eight per cent this morning after it unveiled a £2.5bn merger with fellow housebuilder Redrow.

In a surprise update this morning, the FTSE 100 firm said the move, which will create the UK’s largest house building firm, would help accelerate the “delivery of homes this country needs.”

When the merger completes Barrett’s shareholders will hold approximately 67.2 per cent of the combined group, whilst Redrow’s will account for the remaining 32.8 per cent.

Based on the closing price of Barratt shares on 6 February 2024, the deal values Redrow at around £2.5bn. This represents a premium of about 27.2 per cent over the closing price of Redrow shares on the same date.

Shares in Redrow have added 12.8 per cent in morning trading.

Mergers in the property development sector are not uncommon.

Just two years ago, fellow listed developer Vistry combined its business with smaller rival Countryside, in a £1.3bn deal.

Matthew Pratt, group chief executive of Redrow, said this morning: “Redrow and Barratt combined creates a leading UK homebuilder.

“Together, we’ll be in a much better position to offer a broader range of high-quality and energy efficient homes to customers.”

Today’s development comes amid a torrid time for the UK’s property market, as unusually high mortgage rates and a national cash crunch have lowered demand for homes.

A separate trading announcement this morning by Barratt Developments highlighted the impact this slowdown has had on its bottom line.

During the interim, profit before tax reached £95.2m down from £501.5m in the same period the year before.

Home completions also fell by around 2,000 on a year-on-year basis.

Richard Hunter, head of markets at interactive investor, said:“The rationale for the deal remains in sharp focus, with the toxic cocktail of housebuilder headwinds continuing to wash through.

“Squeezed mortgage affordability and availability resulted in waning customer demand, while broader concerns over general economic growth, consumer confidence and spending have all darkened the picture.”

He added: “At the same time, the removal of the Help to Buy scheme has removed an important plank from first-time buyers and legacy costs for remedial building work continue to come at a significant cost, totalling some £62m  in this period.”