Barratt Developments has agreed a £2.5 billion takeover of Redrow in a deal that will cement its position as the country’s biggest housebuilder while allowing it to reduce costs by an estimated £90 million.
If approved by shareholders, the tie-up would create a developer with a capacity to build almost 23,000 homes nationwide and bring in revenue of £7.5 billion, based on figures from last year. Barratt built 17,000 of those homes, more than any of its rivals.
After a tough 18 months, during which higher mortgage rates have resulted in builders struggling to sell their homes, both companies believe that coming together will give them more “resilience through the cycle”.
City analysts suggested the move showed that Barratt was preparing for a pick-up in the market and that both companies had enjoyed an improvement in sales, although they cautioned that the year was still young.
Barratt and Redrow estimate that within three years of merging they will be able to reduce their annual cost base by £90 million. Most of that is earmarked to come from negotiating better deals with suppliers, given their new, greater scale, closing offices where their networks overlap and removing duplicate costs.
Barratt and Redrow believe that they can benefit from having three brands — Barratt Homes, David Wilson Homes and Redrow — under one roof. Redrow is the more “premium” brand, typically building larger, more expensive family houses. At some of its sites, Barratt thinks that incorporating a more premium product will work well, while some of Redrow’s sites lend themselves to Barratt or David Wilson Homes.