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Bovis in talks with rival builder Galliford Try after rejecting £1bn deal Bovis in talks with rival builder Galliford Try after rejecting £1bn deal
(about 3 hours later)
The British homebuilder Bovis says it has rejected a £1bn approach from its rival Galliford Try but remains in negotiations about a possible deal, and has also rejected a proposal from another suitor, Redrow. Troubled builder Bovis Homes is in talks with rival construction firm Galliford Try over a merger that would create one of Britain’s biggest housebuilders.
“Discussions with Galliford Try are ongoing,” a Bovis statement said. It said an initial all-share offer had been rejected, alongside a share and cash bid from Redrow, because neither reflected the underlying value of the company. Bovis, which has recently come under fire for the quality of its newbuild homes, was forced to confirm over the weekend that it had received takeover approaches from both Galliford and another housebuilder, Redrow.
“The board also concluded that the Redrow proposal was not in the interests of Bovis shareholders as the cash element of the offer would require shareholders to crystallise value at the current Bovis valuation,” it said. It said its board had discussed both of the initial offers and rejected them because “neither reflected the underlying value of the Bovis business”. It indicated talks with Redrow were over for now but that it was open to another pitch from Galliford.
“Redrow subsequently indicated that it was not willing to improve the terms of its proposal and discussions were terminated.” A statement from Bovis said: “The decision to reject the proposals was communicated to the two parties. Redrow subsequently indicated that it was not willing to improve the terms of its proposal and discussions were terminated. Discussions with Galliford Try are ongoing.”
Galliford Try confirmed it was in talks over a possible purchase, saying it had made an offer that would value the entire issued equity of Bovis at £1.19bn, or 886p a share. A merger in the housebuilding sector could bring important cost savings at a time when it is under pressure from skills shortages and shaky investor sentiment as the UK prepares to embark on the process of leaving the EU. Despite those challenges, housebuilders continue to benefit from strong demand for new homes in a market that has suffered from chronic supply shortages for years.
Bovis shares closed at 828p on Friday. Galliford sought to highlight how its housebuilding business would complement Bovis. Galliford has three parts: a regeneration arm; the housebuilding group Linden Homes, which builds around 3,000 homes a year; and a construction business with projects including the retractable roof over Centre Court at the Wimbledon tennis club.
It indicated the current spread of Bovis’s building activity would make a good addition to the focus by Linden Homes on the south and south-east of England. The proposed all-share merger with Bovis would create “a new major housebuilder with national scale and geographic coverage through the combination of the 6th and 8th largest UK housebuilders by completions,” Galliford said in a statement.
The two offers come during a period of upheaval for Bovis. Its shares have underperformed the rest of the sector since last summer’s Brexit vote clouded the future for housebuilders.
In January, Bovis chief executive David Ritchie departed after the housebuilder took the City by surprise over Christmas with a profit warning. It was forced to tell investors it would complete about 180 fewer homes than expected for the year, with between 3,950 and 4,000 completions, rather than the 4,170 forecast by the City.
The company’s shares came under more pressure last month, when Bovis confirmed it was paying £7m to repair poorly built new homes. The company apologised and said it would pay compensation after angry customers formed a Facebook group accusing the group of pressuring them to move in to incomplete houses so it could hit sales targets.
Bovis refused to say how many homes needed the urgent repair work, or how much it will cost to fix each house. The company also refused to say which developments were worst affected, but it is understood that many of the problem homes are in Kent.
The poor standard of homes built by the group raised fresh questions about the standards of new-build properties across the country and the regulation of the market.
There have been a growing number of complaints about the quality of new homes and the organisation that sets the standards for new-build properties. Critics claim NHBC, which provides 10-year warranties for most new homes in Britain, is failing to protect consumers.
In Sunday’s statement Bovis said its board was making “good progress” with plans to recover and improve profitability. “The search for a new chief executive is also progressing well,” it added.
Shares in Bovis closed at 828p on Friday, meaning they are still down 19% since the night of Britain’s referendum on EU membership. By contrast, shares in Galliford quickly recovered from their post-Brexit-vote slump and are now 19% higher than the night of the poll. Redrow’s shares also staged a relatively quick turnaround and are up almost 17% since the 23 June vote.
Galliford said its offer would value Bovis at 886 pence per share and that the combined group would be split 52.25% to Galliford Try shareholders and 47.75% to Bovis shareholders.
Redrow said its offer was worth the equivalent of 814 pence per Bovis share out of cash, new Redrow shares and dividend payments. It added that Bovis shareholders would own approximately 32.4% of the merged group.
Redrow appeared to leave the door open to another approach. In a statement on Sunday, it said: “The board of Bovis informed Redrow on 6 March 2017 that the proposal did not merit further discussion. Redrow continues to believe the potential combination offers a compelling opportunity to create a combined business with the scale and operational strength to compete more effectively in the growing UK housebuilding market.”
It added: “There can be no certainty that any offer will ultimately be made for Bovis.”
Under City takeover rules, both Galliford Try and Redrow now have until 5pm on 9 April to announce a firm intention to make a bid, or they will have to walk away.