7 FEBRUARY 2024
RECOMMENDED ALL-SHARE OFFER FOR THE COMBINATION
of
BARRATT DEVELOPMENTS PLC (“Barratt”)
and
REDROW PLC (“Redrow”)
Summary
| · | The boards of Barratt and Redrow are pleased to announce that they have reached agreement on the terms of a recommended all-share offer for the combination of Barratt and Redrow, pursuant to which Barratt will acquire the entire issued and to be issued ordinary share capital of Redrow (the “Combination“). It is proposed that the Combination will be effected by means of a court-sanctioned scheme of arrangement of Redrow under Part 26 of the Companies Act as set out in this announcement (the “Scheme” or “Scheme of Arrangement“). |
| · | The Combination will build on the excellent reputations for quality, service and sustainability that both Barratt and Redrow have developed, creating an exceptional UK homebuilder in those areas, accelerating the delivery of the homes this country needs. |
| · | Under the terms of the Combination, each Redrow Shareholder will receive: |
for each Redrow Share 1.44 New Barratt Shares
| · | Under the terms of the Combination, Redrow Shareholders will, in aggregate, receive approximately 476,309,153 New Barratt Shares. |
| · | On the basis of the closing price per Barratt Share of 530 pence on 6 February 2024 (being the last Business Day prior to the publication of this announcement), the terms of the Combination imply a value for the entire issued and to be issued ordinary share capital of Redrow of approximately £2,524 million and represent a premium of approximately 27.2 per cent. to the closing price per Redrow Share of 600 pence on 6 February 2024 (being the last Business Day prior to the publication of this announcement). |
| · | Immediately following Completion, Redrow Shareholders will hold approximately 32.8 per cent. of the Combined Group and Barratt Shareholders will hold approximately 67.2 per cent. of the Combined Group. |
| · | The Barratt Directors and the Redrow Directors believe that the Combination will create an exceptional UK homebuilder in terms of quality, service and sustainability, delivering excellence and driving innovation for customers, employees, sub-contractors and the supply chain. The Combination will bring together two companies with highly complementary geographic footprints and three highly respected brands – Barratt Homes, David Wilson Homes and Redrow – with which to accelerate the delivery of much-needed homes across the UK and provide the opportunity for shareholders to participate in future value creation in the Combined Group. |
| · | The Barratt Directors and the Redrow Directors believe the Combination is a uniquely compelling opportunity to:· bring together complementary offerings to create an exceptional UK homebuilder in terms of quality, service and sustainability that builds high-quality, sustainable homes and communities for customers across the UK, addressing the country’s need for homes;· create a strong brand portfolio with three high-quality, complementary brands including Redrow positioned as its premium brand, offering customers a wider range of home types and price points and accelerating delivery on sites, a strategy that Barratt previously successfully executed through the acquisition of David Wilson Homes;· realise significant cost synergies from procurement savings and a rationalisation of divisional and central functions which are expected to drive a combined lower cost base;· maintain a robust balance sheet, better protected to operate through the cycle, and provide a strong platform from which to deliver improved shareholder returns over the medium term; and· deliver significant benefits for all of the Combined Group’s wider stakeholders. |
| · | The board of Barratt believes that the Combined Group can be expected to achieve pre-tax cost synergies of at least £90 million on an annual run-rate basis by the end of the third year following Completion, of which approximately 90 per cent. is expected to be delivered by the end of the second year following Completion.[1] The one-off costs of delivering these savings are expected to total approximately £73 million, with approximately 57 per cent. incurred in the first year following Completion, approximately 32 per cent. expected to be incurred in the second year following Completion and the remainder by the end of the third year following Completion. The Combination is expected to be accretive to Barratt and Redrow’s respective adjusted earnings per share in the first year after Completion (excluding one-off costs of delivering synergies). |
| · | The Barratt Directors and the Redrow Directors also note that Steve Morgan, Redrow’s founder, is supportive of the Combination and Barratt has received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the Redrow General Meeting from Bridgemere Securities Limited, Steve Morgan’s family investment vehicle and Redrow’s largest shareholder, in respect of a total of 52,851,816 Redrow Shares representing, in aggregate, approximately 16 per cent. of Redrow’s issued ordinary share capital as at 6 February 2024 (being the last Business Day prior to the date of this announcement). |
| · | Commenting on the Combination, David Thomas, Group Chief Executive of Barratt, said: “We have great respect for Redrow, its overall strategy, its leadership and employees, and its high-quality homes and communities. 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. The Combined Group would leverage the respective strengths of both Barratt and Redrow, delivering significant benefits to our people, our supply chains, and – most importantly – our customers.” |
| · | Commenting on the Combination, Matthew Pratt, Group Chief Executive of Redrow, said:“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.The Redrow brand, with its premium, characterful homes, has an excellent reputation and will remain a key part of the Combined Group. As with Barratt, Redrow’s fifty-year success story is based on its people, products and supply chain partners. Both businesses are a great fit and there are many exciting opportunities to innovate and share knowledge across a range of different areas.” |
| · | Commenting on the Combination, Steve Morgan, Redrow’s founder said:”During the 50 years since I founded Redrow, I could not be more proud of the unique reputation it has earned for building premium homes and thriving communities.Barratt is a home builder I have long admired due to their likeminded attention to quality. I am confident that the Barratt / Redrow combination with their three high-quality complementary brands, will create a standout home builder for the future and accelerate the delivery of much needed homes across the UK.“ |
Information on the Combined Group
Business of the Combined Group
| · | Following Completion and subsequent integration, the Combined Group will build upon the respective strengths and likeminded performance-driven cultures of both Barratt and Redrow, in particular a mutual focus on customers, quality and sustainability, to ensure the continued delivery of high-quality homes and communities that the country needs. |
| · | The Combined Group will have a strong brand portfolio of three high-quality, complementary brands, including Redrow positioned as the premium brand therein. The portfolio will be able to meet customers’ needs across a wider range of price points, increasing the Combined Group’s addressable market. The Combined Group will continue to evolve and develop strong and innovative products across all three brands focused on design excellence and build quality. |
| · | The Combined Group expects to be able to increase volumes through a three-brand strategy, with the potential to accelerate the delivery of homes from the combined and complementary land pipeline by introducing the Redrow brand on appropriate Barratt sites and vice versa. The Combined Group will take advantage of the complementary geographical footprints of Barratt and Redrow, with a total land pipeline of 92,345 plots as at 31 December 2023.[2] |
| · | The Combined Group will provide an opportunity for both sets of shareholders to realise the benefits of significant cost synergies from procurement savings and a rationalisation of divisional and central functions which are expected to drive a combined lower cost base. |
Board and executive leadership team of the Combined Group
| · | Caroline Silver, Barratt’s Non-Executive Chair, will lead the Combined Group as Non-Executive Chair. Barratt’s Chief Executive, David Thomas, will be Group Chief Executive of the Combined Group. Mike Scott, Chief Financial Officer of Barratt, will be Chief Financial Officer of the Combined Group, and Steven Boyes, Chief Operating Officer and Deputy Chief Executive of Barratt, will be Chief Operating Officer and Deputy Chief Executive of the Combined Group. |
| · | The board of directors of the Combined Group will be a combined board comprising the existing executive and non-executive directors of Barratt, with the addition of (i) Matthew Pratt, currently Group Chief Executive of Redrow, who will join the Combined Group and assume the role of Chief Executive Officer, Redrow, and Group Executive Director, and (ii) Nicky Dulieu, currently Senior Independent Director of Redrow, and Geeta Nanda, currently Non-Executive Director of Redrow, who will both join as Non-Executive Directors. |
| · | Barbara Richmond, Group Finance Director of Redrow, has agreed to join the Combined Group to support the integration for a period of not less than 12 months to ensure continuity and with a view to realising the benefits of the Combination for both sets of shareholders. |
| · | Any executive or non-executive directors of Redrow not appointed to the board of the Combined Group will step down from the Redrow board upon Completion. |
Combined Group name
| · | The Combined Group will be renamed “Barratt Redrow plc” from Completion. |
Key financial information of the Combined Group
| · | Barratt and Redrow generated aggregate revenue of £7,448 million in FY 2023, delivering total completions of 22,642.[3] |
| · | The Combined Group is expected to benefit from a robust aggregated balance sheet, building on Barratt and Redrow’s aggregate net cash position of £874 million as at 31 December 2023,[4] providing the Combined Group flexibility to manage the business for the long term, resilience through the cycle and the flexibility to respond to changing market conditions. The Combined Group will continue Barratt’s and Redrow’s existing practice of prudently managing the balance sheet and maintaining a highly selective approach to land buying. Furthermore, the Barratt Directors believe the Combined Group’s robust balance sheet will allow the Combined Group to capitalise on future land opportunities. |
Capital allocation and dividend policy of the Combined Group
| · | It is intended that the Combined Group will maintain Barratt’s existing dividend policy of 1.75x ordinary dividend cover based on adjusted earnings per share. |
| · | The Barratt Directors believe that this would result in a significant uplift in dividend payments to Redrow Shareholders, with the scale and balance sheet strength of the Combined Group further underpinning its ability to maintain increased future dividend payments. |
| · | The Barratt Directors recognise the importance of returning surplus capital to shareholders. Excess cash is expected to be returned to the Combined Group’s shareholders via a share buyback or special dividend if appropriate following investment in the business and the payment of an ordinary dividend. |
Listing and trading of Barratt Shares and Redrow Shares
| · | Prior to the Scheme becoming Effective, it is intended that applications will be made to the Financial Conduct Authority to cancel the listing of the Redrow Shares on the Official List and to the London Stock Exchange for the cancellation of trading of the Redrow Shares on the London Stock Exchange’s Main Market for listed securities, to take effect on the Business Day following the Effective Date. Redrow is also expected to be re-registered as a private company after Completion. |
| · | Barratt will seek approval for the New Barratt Shares to be admitted to the premium listing segment of the Official List (or, if there is no premium listing segment, the same listing segment as the Barratt Shares are trading on) and to trading on the Main Market of the London Stock Exchange alongside the existing Barratt Shares. |
Dividends
| · | Under the terms of the Co-operation Agreement, Barratt and Redrow have agreed that:· Redrow Shareholders will be entitled to receive a dividend of 5.0 pence per Redrow Share in respect of the six-month period ended 31 December 2023 as set out in the Redrow HY24 Results announced immediately before the publication of this announcement, scheduled to be paid on 8 April 2024 (the “Redrow Interim Dividend“);· Barratt Shareholders will be entitled to receive a dividend of 4.4 pence per Barratt Share in respect of the six-month period ended 31 December 2023 as set out in the Barratt HY24 Results announced immediately before the publication of this announcement, scheduled to be paid on 17 May 2024 (the “Barratt Interim Dividend“);· to the extent Completion occurs after the record date in respect of any Redrow dividend in respect of each of the successive six-month periods ending 30 June 2024, 31 December 2024 or 30 June 2025 (as relevant), Redrow Shareholders will be entitled to receive and retain any such dividend, provided in each case that it is in accordance with Redrow’s existing dividend policy, consistent with past practice in relation to the payment of dividends and Redrow and Barratt have agreed the record date for such dividend (each such dividend a “Redrow Additional Permitted Dividend“); and· to the extent Completion occurs after the record date in respect of any Barratt dividend in respect of each of the successive six-month periods ending 30 June 2024, 31 December 2024 or 30 June 2025 (as relevant), Barratt Shareholders will be entitled to receive and retain any such dividend, provided in each case that it is in accordance with Barratt’s existing dividend policy, consistent with past practice in relation to the payment of dividends and Redrow and Barratt have agreed the record date for such dividend (each such dividend a “Barratt Additional Permitted Dividends“). |
| · | If, on or after the date of this announcement and on or prior to the Effective Date, Redrow announces, declares, makes or pays: (i) the Redrow Interim Dividend, a Redrow Additional Permitted Dividend or a Redrow Equalising Dividend (as defined below), and the quantum of such dividend is in excess of the amount which Redrow is entitled to pay to Redrow Shareholders pursuant to the terms of the Co-operation Agreement; or (ii) any other dividend, distribution or form of capital return, Barratt shall be entitled to either:· adjust the Exchange Ratio by an amount equivalent to all or any part of such excess (in the case of the Redrow Interim Dividend, a Redrow Additional Permitted Dividend or a Redrow Equalising Dividend (as relevant)) or by the amount of all or part of any such other dividend, distribution or form of capital return, in which case references to the Exchange Ratio will be deemed to be a reference to the Exchange Ratio as so adjusted; or· pay an equalising dividend to Barratt Shareholders so as to reflect the value attributable to all or any part of such excess (in the case of the Redrow Interim Dividend, a Redrow Additional Permitted Dividend or a Redrow Equalising Dividend (as relevant)) or by the amount of all or part of any such other dividend, distribution or form of capital return (a “Barratt Equalising Dividend“), without any consequential change to the Exchange Ratio. |
In such circumstances, Redrow Shareholders will be entitled to retain the full amount of any such excess or such other dividend, distribution or form of capital return declared, made, or paid.
| · | If, on or after the date of this announcement and on or prior to the Effective Date, Barratt announces, declares, makes or pays: (i) the Barratt Interim Dividend, a Barratt Additional Permitted Dividend or a Barratt Equalising Dividend, and the quantum of such dividend is in excess of the amount which Barratt is entitled to pay to Barratt Shareholders pursuant to the terms of the Co-operation Agreement; or (ii) any other dividend, distribution or form of capital return, Redrow shall be entitled to pay an equalising dividend to Redrow Shareholders so as to reflect the value attributable to all or any part of such excess (in the case of the Barratt Interim Dividend, a Barratt Additional Permitted Dividend or a Barratt Equalising Dividend (as relevant)) or by the amount of all or part of any such other dividend, distribution or form of capital return (a “Redrow Equalising Dividend“), without any consequential change to the Exchange Ratio. In such circumstances, Barratt Shareholders will be entitled to retain the full amount of any such excess or such other dividend, distribution, or form of capital return declared, made, or paid. |
| · | Under the terms of the Co-operation Agreement, Barratt has undertaken not to declare, make or pay any dividend, distribution or form of capital return other than the Barratt Interim Dividend, any Barratt Additional Permitted Dividend and any Barratt Equalising Dividend. |
Barratt Shareholder approval of the Combination
| · | The Combination constitutes a Class 1 transaction for Barratt for the purposes of the Listing Rules. Accordingly, the Combination will be conditional on, amongst other things, the approval of Barratt Shareholders at the Barratt General Meeting. |
Redrow Recommendation
| · | The Redrow Directors, who have been so advised by Barclays and Peel Hunt as to the financial terms of the Combination, consider the terms of the Combination to be fair and reasonable. Peel Hunt is providing independent financial advice to the Redrow Directors for the purposes of Rule 3 of the Takeover Code. In providing their advice to the Redrow Directors, Barclays and Peel Hunt have taken into account the commercial assessments of the Redrow Directors. |
| · | Accordingly, the Redrow Directors intend to recommend unanimously that Redrow Shareholders vote in favour of both the Scheme at the Court Meeting and the resolutions to be proposed at the Redrow General Meeting, as those Redrow Directors who hold Redrow Shares have irrevocably undertaken to do in respect of their own beneficial holdings of 161,913 Redrow Shares, representing, in aggregate, approximately 0.049 per cent. of the issued ordinary share capital of Redrow in issue on 6 February 2024 (being the last Business Day prior to the date of this announcement). |
Barratt Recommendation
| · | The Barratt Directors consider the terms of the Combination to be in the best interests of Barratt and Barratt Shareholders as a whole. Accordingly, the Barratt Directors intend to recommend unanimously that Barratt Shareholders vote in favour of the Barratt Resolutions at the Barratt General Meeting, as those Barratt Directors who hold Barratt Shares have irrevocably undertaken to do in respect of their own beneficial holdings of 1,690,704 Barratt Shares, representing, in aggregate, approximately 0.173 per cent. of the issued ordinary share capital of Barratt in issue on 6 February 2024 (being the last Business Day prior to the date of this announcement). |
| · | The Barratt Directors have received financial advice from UBS and Morgan Stanley in relation to the Combination. In providing their advice to the Barratt Directors, UBS and Morgan Stanley have taken into account the commercial assessments of the Barratt Directors. |
Irrevocable Undertakings
Redrow Shares
| · | Taking into account the irrevocable undertakings from each of the Redrow Directors who hold Redrow Shares and Bridgemere Securities Limited, Steve Morgan’s family investment vehicle, described above, Barratt has received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the Redrow General Meeting in respect of a total of 53,013,729 Redrow Shares representing, in aggregate, approximately 16 per cent. of Redrow’s ordinary share capital in issue on 6 February 2024 (being the last Business Day prior to the date of this announcement). |
| · | Further details of these irrevocable undertakings are set out in Appendix III to this announcement. |
Barratt Shares
| · | Taking into account the irrevocable undertakings from each of the Barratt Directors who hold Barratt Shares, Redrow has received irrevocable undertakings to vote in favour of the Barratt Resolutions at the Barratt General Meeting in respect of a total of 1,690,704 Barratt Shares representing, in aggregate, approximately 0.173 per cent. of Barratt’s ordinary share capital in issue on 6 February 2024 (being the last Business Day prior to the date of this announcement). |
| · | Further details of these irrevocable undertakings are set out in Appendix III to this announcement. |
Conditions and Timetable
| · | It is intended that the Combination will be effected by means of a Court-approved Scheme of Arrangement between Redrow and Redrow Shareholders under Part 26 of the Companies Act although Barratt reserves the right to implement the Combination by means of a Takeover Offer (subject to the consent of the Panel and the terms of the Co-operation Agreement). |
| · | The Combination is conditional on the approval of the requisite majority of Redrow Shareholders at the Court Meeting and at the Redrow General Meeting. In order to become Effective, the Scheme must be approved by a majority in number of the Redrow Shareholders on the register of members of Redrow at the Voting Record Time who are present and vote, whether in person or by proxy, at the Court Meeting and who represent not less than 75 per cent. in value of the Redrow Shares voted by those Redrow Shareholders. In addition, special resolutions implementing the Scheme must be passed by Redrow Shareholders representing at least 75 per cent. of votes cast at the Redrow General Meeting. |
| · | The Combination is also subject to the Conditions and terms set out in Appendix I to this announcement including, amongst other things, the approval by a simple majority of the votes cast by Barratt Shareholders at the Barratt General Meeting as a Class 1 transaction under the Listing Rules and the grant of authority to allot the New Barratt Shares. It is also conditional on the receipt of merger control clearance in the United Kingdom, as well as the further terms and conditions of the Scheme, which will be set out in full in the Scheme Document. |
| · | The Scheme Document, containing further information about the Combination and notices of the Court Meeting and the Redrow General Meeting, will be sent to Redrow Shareholders (along with the Forms of Proxy for use in connection with the Court Meeting and Redrow General Meeting) in due course. For the purposes of paragraph 3(a) of Appendix 7 of the Takeover Code, the Panel has consented to an extension of the applicable date for posting. |
| · | Barratt will prepare, publish and send to Barratt Shareholders the Barratt Circular (along with the Forms of Proxy for use in connection with the Barratt General Meeting) and will prepare and publish the Barratt Prospectus. The Barratt Circular will summarise the background to and reasons for the Combination and will include a notice convening the Barratt General Meeting containing the Barratt Resolutions to be proposed for the Combination. The Barratt Prospectus is required in connection with the Admission of the New Barratt Shares and will contain information relating to the Combination, the Combined Group and the New Barratt Shares. |
| · | The Scheme Document, the Barratt Circular and the Barratt Prospectus will be made available by Barratt on its website at www.barrattdevelopments.co.uk and by Redrow on its website at https://investors.redrowplc.co.uk. |
| · | As there is significant overlap between the Scheme Document, the Barratt Circular and the Barratt Prospectus, it is intended that the Scheme Document will be posted at the same time as the publication of the Barratt Circular and the Barratt Prospectus, both of which require review and approval by the FCA. Each of the Scheme Document, the Barratt Circular and the Barratt Prospectus are expected to be published by mid-April 2024 and on the same date and it is expected that the Court Meeting, the Redrow General Meeting and the Barratt General Meeting will be held by mid-May 2024 on the same date and at or around the same time. Subject to the satisfaction or (where applicable) waiver of the Conditions, the Combination is expected to become Effective during the second half of 2024. |
Interim results and investor and analyst presentation
| · | Barratt and Redrow have, immediately before the publication of this announcement, each published their results for the half year ended 31 December 2023. |
| · | There will be an investor and analyst presentation at 8.30 a.m. on 7 February 2024 at Peel Hunt, 100 Liverpool Street, London, EC2M 2AT covering the Combination, the Barratt HY24 Results and the Redrow HY24 Results. There will be a live webcast of the investor and analyst presentation available on Barratt’s website at www.barrattdevelopments.co.uk and on Redrow’s website at https://investors.redrowplc.co.uk. |