Barratt Redrow: Housebuilders agree tie-up worth £2.5bn in 'seismic shift' for the sector

The deal values Redrow at £2.52bn and represents a premium of about 27 per cent for shareholders, based on the closing price of Redrow shares on Tuesday.

On completion of the merger, which must first be approved by both shareholders and the financial regulator, Redrow investors will hold about a third of the combined group and Barratt shareholders two-thirds.

David Thomas, chief executive of FTSE 100-listed Barratt, said the business has “great respect” for its competitor.

“This is an exciting opportunity to bring together two highly complementary companies, creating an exceptional homebuilder in terms of quality, service and sustainability, able to build more of the high-quality homes this country needs,” he said.

Redrow’s boss, Matthew Pratt, said the merger will create a “leading UK homebuilder” and leave both businesses “in a much better position to offer a broader range of high-quality and energy efficient homes” to buyers.

The tie-up is expected to lead to cost savings of at least £90m a year, with a one-off cost of making these savings of about £73m, the companies said.

This is expected to partly be achieved by a restructuring of staff and offices as they “retain the best talent” from both organisations and cut overlapping roles.

It could lead to the loss of about 10 per cent of jobs across the combined business.

Barratt said it does not expect to significantly reduce building site-based or sales office-based staff because existing sites will continue to run in a similar way.

Richard Hunter, Head of Markets at interactive investor, commented: “

“The move is a seismic shift for the sector, reflecting not only the challenges which housebuilders have more recently faced in terms of the economic backdrop, but also a move to shore up the capabilities of two major players, with the new “Barratt Redrow” company having aggregate revenues of £7.45bn.

"Subject to shareholder and regulatory approvals, the aim is to complete the deal in the second half of this year, with Redrow becoming the premium brand in the enlarged portfolio.

"Complementary geographical footprints add a further intriguing dimension to the deal. In the meantime, 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.”