5 September 2022
RECOMMENDED CASH AND SHARE COMBINATION
of
Vistry Group PLC (“Vistry”)
and
Countryside Partnerships PLC (“Countryside”)
to be effected by means of a scheme of arrangement
under Part 26 of the Companies Act 2006
Summary
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The board of directors of each of Vistry and Countryside are pleased to announce that they have reached agreement on the terms of a recommended cash and share combination pursuant to which Vistry will acquire the entire issued and to be issued ordinary share capital of Countryside (the “Combination“). The Combination is to be effected by means of a scheme of arrangement under Part 26 of the Companies Act. |
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Under the terms of the Combination, Countryside Shareholders shall be entitled to receive: |
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for each Countryside Share |
0.255 of a New Vistry Share |
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and |
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60 pence in cash |
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Based upon Vistry's closing share price of 741 pence as of 2 September 2022 (being the last practicable date prior to this announcement), the Combination represents a total implied value of 249 pence per Countryside Share, valuing the entire issued and to be issued ordinary share capital of Countryside at approximately £1,254 million. |
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Based upon Vistry's closing share price of 741 pence as of 2 September 2022 (being the last practicable date prior to this announcement), the Combination represents a total implied value of 249 pence per Countryside Share, valuing the entire issued and to be issued ordinary share capital of Countryside at approximately £1,254 million. |
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The terms of the Combination represent a premium of approximately 9.1 per cent. to the Closing Price per Countryside Share of 228 pence on 2 September 2022 (being the latest practicable date prior to the date of this announcement). |
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A Mix and Match Facility will also be made available to Countryside Shareholders (other than certain persons in the United States and other Restricted Jurisdictions) in order to enable them to elect, subject to off-setting elections, to vary the proportions in which they receive cash and New Vistry Shares in respect of their holdings in Countryside Shares. However, the total number of New Vistry Shares to be issued and the maximum aggregate amount of cash to be paid under the terms of the Combination will not be varied as a result of elections under the Mix and Match Facility. |
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Under the terms of the Combination, Countryside Shareholders will, in aggregate, receive approximately 128,398,747 New Vistry Shares. Immediately following Completion of the Combination, Countryside Shareholders will own approximately 37 per cent. of the ordinary share capital of the Combined Group (based on the existing issued ordinary share capital of Vistry and the fully diluted ordinary share capital of Countryside) as at 2 September 2022 (being the latest practicable date prior to the date of this announcement). |
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The Combination would create one of the country's leading homebuilders, comprising a top tier housebuilder and a leading partnerships business, with capability across all housing tenures, and delivering much needed affordable housing. The Combination has a strong strategic rationale and the potential for material value creation for shareholders in the Combined Group. In particular, the Combination would have, among other things, the following key advantages: |
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strengthens the Vistry Group's position across both housebuilding and partnerships to deliver sector-leading returns; |
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a capital-light, high ROCE partnerships business, targeting a 40 per cent. ROCE in the short term and expected to increase to over £3 billion revenue per annum in the medium term, representing a larger part of the Vistry Group. In addition, if the market does not recognise the full value of the Combined Group by 2025, it is expected that each of its two divisions would be large enough to succeed as independent businesses, giving the option to separate them at the time if the board of directors of the Combined Group considered this to be in the best interests of its shareholders; |
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increased partnerships exposure, which offers greater resilience to the cyclicality of the housing market, with increased earnings visibility and a consistently strong forward order book underpinned by a high and sustained level of demand for affordable housing; |
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significant benefits and value creation from the increased scale of the combined business and synergies of at least £50 million and potentially from the Countryside Group's timber frame capability, with operational benefits including procurement processes, an improved implementation of the Future Homes Standard and the reduction of people risk within the current tight labour market; |
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combined brand strength of Bovis Homes, Linden Homes and the highly regarded Countryside's partnerships business allows for a multiple branded, mixed-tenure strategy that enhances market presence while driving higher absorption rates; and |
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extensive management capability with a strong and proven track record, led by the Vistry Group's Chief Executive Officer Greg Fitzgerald, who is highly qualified to integrate the two businesses and lead the Combined Group through a new phase of growth, together with the Vistry Group's existing leadership team and senior executive support from Countryside. |
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Following Completion of the Combination, both Countryside Shareholders and Vistry Shareholders will share in the benefits accruing to the Combined Group via the expected realisation of meaningful cost synergies. The Vistry Directors believe that the Combined Group can deliver at least £50 million of pre-tax recurring cost synergies on an annual run-rate basis by the end of the second year following Completion. |
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The board of directors of each of Vistry and Countryside also note that, in total, five Countryside Shareholders, being Browning West, Inclusive Capital Partners, David Capital Partners, Anson Advisors and Abrams Capital Management, representing approximately 39.1 per cent. of Countryside's issued ordinary share capital as at 2 September 2022 (being the latest practicable date prior to the date of this announcement), are supportive of the Combination and have each entered into irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the Countryside General Meeting. |
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The Countryside Board also notes that Inclusive Capital Partners, representing 9.2 per cent. of Countryside's issued ordinary share capital as at 2 September 2022 (being the latest practicable date prior to the date of this announcement), who previously announced a possible offer to acquire Countryside under Rule 2.4 of the Code and had indicated that it would be willing to participate in the Formal Sales Process, has provided an irrevocable undertaking to Vistry in connection with the Combination. |
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Vistry intends the Combined Group to maintain a strong and robust balance sheet, with target Gearing of less than 10 per cent. |
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Vistry is funding the cash consideration payable pursuant to the Combination through new debt financing arranged by HSBC. Consistent with the Vistry Group's prudent approach to debt financing, it is intended that this new debt financing for funding will be repaid within two years. |
Commenting on the Combination, Greg Fitzgerald, the Chief Executive Officer of Vistry, said:
“This proposed Combination has a highly compelling strategic rationale. It will create a leader in the Partnerships housing sector, with the scale and expertise to accelerate profitable growth across both Partnerships and Housebuilding, and expand the delivery of much needed affordable housing across England. The proposed Combination will add the strength of the Countryside brand to Vistry's own well-established Bovis Homes and Linden Homes brands and will leverage the skills and market knowledge of both the Countryside and Vistry teams.
We believe there is clear potential to generate material value for both Vistry and Countryside Shareholders and wider stakeholders from a combined group with enhanced scale and superior returns and to improve the performance of key parts of Countryside's business. We welcome the support of the Countryside Board and the support we have already received from a significant proportion of Countryside Shareholders for the Combination.“
Commenting on the Combination, Douglas Hurt, the Chairman of Countryside, said:
“The Combination will create a leading, enlarged partnerships business and is an opportunity to leverage both Countryside's brand and place-making experience with the growing Vistry partnerships business, alongside Vistry's established housebuilding business. The scale of the Combined Group will enable the delivery of synergies, operating efficiencies and further growth for the benefit of Countryside Shareholders and wider stakeholders.
The Countryside Board has carefully reviewed this Combination and believes it offers the best potential to create the greatest value for Countryside Shareholders. “
Dividends
- Vistry Shareholders will be entitled to receive and retain:
- any interim dividend that is announced, declared, paid or made or becomes payable by Vistry in respect of the six-month period ended 30 June 2022; and
- any Vistry dividend that is announced, declared, paid or made or becomes payable by Vistry in respect of the six-month period ending 31 December 2022 (the “December Vistry Dividend“).
- If Completion of the Combination occurs before the record date for any December Vistry Dividend, Countryside Shareholders will be entitled to receive and retain any December Vistry Dividend as shareholders in the Combined Group. If Completion of the Combination occurs after the record date for any December Vistry Dividend that is, on or prior to Completion, announced, declared made, paid or becomes payable by Vistry, Countryside and Vistry have agreed that Countryside has the right to declare and pay an equalisation dividend to Countryside Shareholders in an amount up to (but not exceeding) the amount of the December Vistry Dividend (calculated in accordance with the Equalisation Formula described below), without any reduction being made to the Combination Consideration (a “Countryside Equalisation Dividend“). Any such Countryside Equalisation Dividend will be calculated per Countryside Share as the amount of the December Vistry Dividend per Vistry Share multiplied by the Exchange Ratio (the “Equalisation Formula“).
- Vistry's existing dividend policy is to pay out to a two times ordinary dividend cover in respect of a full financial year. The typical timing for the record date for a dividend in respect of the six-month period ending 31 December, where declared, is during April each year.
- In respect of Countryside Shares, if, on or after the date of this announcement and on or prior to the Effective Date, any dividend, distribution, or other return of value is announced, declared, made, paid or becomes payable by Countryside, other than with respect to a Countryside Equalisation Dividend that is calculated in accordance with the Equalisation Formula, Vistry reserves the right (without prejudice to any right Vistry may have, with the consent of the Panel, to invoke Condition 3(g)(ii) in Part A of Appendix I to this announcement) to (at Vistry's sole discretion): (i) reduce the Combination Consideration by an amount equivalent to all or any part of such dividend, distribution, or other return of value, in which case any reference in this announcement to the Combination Consideration will be deemed to be a reference to the Combination Consideration as so reduced; or alternatively (ii) declare and pay an equalisation dividend to Vistry Shareholders so as to reflect the value attributable to the dividend, distribution, or other return of value as is announced, declared, made, paid or becomes payable by Countryside.
- Under the terms of the Co-operation Agreement, Vistry has undertaken not to declare, make or pay any dividend, distribution, or other return of value other than as contemplated in respect of Vistry as above. Nothing in this announcement or the Co-operation Agreement shall require Vistry to announce, declare, make or pay any dividend.
Termination of Formal Sales Process, Countryside Chief Executive Officer search and Countryside Share Buyback Programme
- As a result of the Combination, the Countryside Directors have taken the decision to terminate the Formal Sales Process with immediate effect and Countryside has ceased all preparations in connection therewith.
- The Countryside Directors have also decided to discontinue the search for a permanent Chief Executive Officer and to terminate the share buy-back programme previously announced (which was discontinued for so long as the Formal Sales Process was ongoing).
Vistry Shareholder approval of the Combination
- The Combination constitutes a Class 1 transaction for Vistry for the purposes of the Listing Rules. Accordingly, the Combination will be conditional on, amongst other things, the approval of Vistry Shareholders at the Vistry General Meeting.
Countryside Recommendation
- The Countryside Directors, who have been so advised by Rothschild & Co as to the financial terms of the Combination, consider the terms of the Combination to be fair and reasonable. In providing its advice to Countryside Directors, Rothschild & Co has taken into account the commercial assessments of the Countryside Directors. In addition, the Countryside Directors consider the terms of the Combination to be in the best interests of Countryside Shareholders as a whole.
- Accordingly, the Countryside Directors intend to recommend unanimously that Countryside Shareholders vote in favour of the Scheme at the Court Meeting and the resolution to be proposed at the Countryside General Meeting as those Countryside Directors who hold Countryside Shares have irrevocably undertaken to do in respect of their own beneficial holdings of 411,209 Countryside Shares representing, in aggregate, approximately 0.08 per cent. of the ordinary share capital of Countryside in issue on 2 September 2022 (being the latest practicable date prior to this announcement).
Vistry Recommendation
- The Vistry Directors consider the Combination to be in the best interests of Vistry and the Vistry Shareholders as a whole and intend to recommend unanimously that Vistry Shareholders vote in favour of the Vistry Resolutions at the Vistry General Meeting, as those Vistry Directors who hold Vistry Shares have irrevocably undertaken to do in respect of their entire beneficial holdings of, in aggregate, 524,654 Vistry Shares, representing approximately 0.24 per cent. of Vistry's issued ordinary share capital on 2 September 2022 (being the latest practicable date prior to this announcement).
- The Vistry Directors have received financial advice from HSBC and Lazard in relation to the Combination. In providing their advice to the Vistry Directors, HSBC and Lazard have relied upon the Vistry Directors' commercial assessments of the Combination.
Irrevocable Undertakings and Letters of Support
Countryside Shares
- As noted above, Vistry has received irrevocable undertakings from each of the Countryside Directors to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the Countryside General Meeting, in respect of a total of 411,209 Countryside Shares, representing, in aggregate, approximately 0.08 per cent. of the existing issued ordinary share capital of Countryside on 2 September 2022 (being the latest practicable date prior to the date of this announcement).
- Vistry has also received irrevocable undertakings from Browning West, Inclusive Capital Partners, David Capital Partners, Anson Advisors and Abrams Capital Management, in respect of a total of 195,154,871 Countryside Shares representing, in aggregate, approximately 39.1 per cent. of Countryside's issued ordinary share capital on 2 September 2022 (being the latest practicable date prior to this announcement), to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the Countryside General Meeting.
- Vistry has therefore received irrevocable undertakings in respect of a total of 195,566,080 Countryside Shares representing, in aggregate, approximately 39.1 per cent. of Countryside's issued ordinary share capital on 2 September 2022 (being the latest practicable date prior to this announcement).
Vistry Shares
- Countryside has received irrevocable undertakings from the Vistry Directors who hold Vistry Shares to vote in favour of the Vistry Resolutions at the Vistry General Meeting in respect of a total of 524,654 Vistry Shares representing, in aggregate, approximately 0.24 per cent. of Vistry's issued ordinary share capital on 2 September 2022 (being the latest practicable date prior to this announcement).
- Countryside has therefore received irrevocable undertakings in respect of a total of 524,654 Vistry Shares representing, in aggregate, approximately 0.24 per cent. of Vistry's issued ordinary share capital on 2 September 2022 (being the latest practicable date prior to this announcement).
- Further details of these irrevocable undertakings are set out in Appendix III to this announcement.
Information on the Combined Group
Business of the Combined Group and key brands
- Following Completion of the Combination and a period of integration, the Combined Group will be organised into two distinct businesses, each of significant scale: (i) a housebuilding business, to be known as Vistry Housebuilding, consisting of the existing Vistry Housebuilding business, with the addition of certain sites from the Countryside Group; and (ii) a partnerships business, to be re-branded Countryside Partnerships, consisting of Vistry Partnerships and the Countryside Group's core partnerships business. Vistry's key retail brands, most notably Bovis Homes and Linden Homes, will be retained and used across the Combined Group.
- The Combined Group will have a balanced split between the Housebuilding business and the Partnerships business, and creating a more even distribution of profits to improve our resilience and returns. On a historical combined basis (based on the audited financial statements of the Vistry Group and the Countryside Group for the financial years ended 31 December 2021 and 30 September 2021, respectively), Partnerships would represent approximately 45 per cent. of the Combined Group's adjusted revenue (£1.9 billion) and Housebuilding would represent approximately 55 per cent. (£2.3 billion) of the Combined Group's adjusted revenue.
- The Housebuilding business and the Partnerships business of the Combined Group will each be supported by a strong land bank across the Combined Group, with a total land bank of over 80,000 plots (with an average of 162 plots per site). A further in-house strategic land capability will deliver land for both businesses, with nearly 70,000 total combined strategic land plots (across 196 sites), based on historic Vistry Group data as at 31 December 2021 and historic Countryside Group data as at 31 March 2022. This will enlarge the in-house strategic land capability of the Combined Group. [1]
Key financial information regarding the Combined Group
- The revenue of the Combined Group's Partnerships business would be expected to increase to over £3 billion per annum in the medium term, materially in excess of the Vistry Group's existing medium term target of approximately £1.6 billion.
- The Combined Group's Partnerships business will target a ROCE of above 40 per cent. in the short term. The Countryside Group's Partnerships business has generated a lower ROCE than the Vistry Group's 40 per cent. target, such that the combined ROCE for the Partnerships business of the Combined Group would be below 40 per cent. immediately following Completion of the Combination. [2]Following Completion of the Combination, the management team of the Combined Group will maintain Vistry's current target of a 40 per cent. ROCE with a combined management team working to achieve this target in the short term. The Combination is also expected to be ROCE enhancing from 2024.
- Adjusted revenue of the Partnerships business of the Combined Group represents an increase from 32 per cent. for the Vistry Group on a standalone basis, and is expected to increase further to more than 50 per cent. of the Combined Group's adjusted revenue in the short term.
- With the increased scale, the Combined Group will seek to achieve adjusted operating profit for each of the Housebuilding business and the Partnerships business in excess of £400 million (in excess of £800 million in total).
Board and executive leadership team of the Combined Group
- The Combined Group will be led by Vistry's Chief Executive Officer, Greg Fitzgerald. Ralph Findlay, Vistry's Non-Executive Chairman, will assume the Chairmanship of the Combined Group.
- The board of directors will comprise the existing executive and non-executive directors of Vistry with the addition of Tim Lawlor, who will join the board of directors as an executive director.
- The Vistry Group's current strong existing executive leadership team will comprise the executive leadership team of the Combined Group, subject to the following changes:
- Tim Lawlor will join the executive leadership team in his capacity as Chief Financial Officer; and
- Earl Sibley, currently Chief Financial Officer of the Vistry Group, will assume the position of Chief Operating Officer.
- Stephen Teagle will lead the Partnerships business of the Combined Group as Chief Executive – Partnerships Division and Keith Carnegie will lead the Housebuilding business of the Combined Group as Chief Executive – Housebuilding Division.
- As announced on 27 April 2022, Graham Prothero, Chief Operating Officer of the Vistry Group, has resigned as Chief Operating Officer and as a director of Vistry with effect from 31 December 2022. Graham will remain with the Combined Group as an executive director and member of the executive leadership team until that date.
- In addition, to ensure continuity and assist with the preliminary stages of the integration of the Combined Group, Mike Woolliscroft and Philip Chapman, currently Co-interim Chief Executive Officers of the Countryside Group, intend to remain with the Combined Group for an interim period.
- Other than as described above, all executive and non-executive directors of the Countryside Board will resign on the Effective Date.
Capital application policy of the Combined Group
- It is intended that the Combined Group would initially maintain the Vistry Group's existing policy of paying out to a two times ordinary dividend cover in respect of a full financial year. Any surplus capital, following investment in the business to support the Combined Group's growth strategy and the payment of the ordinary dividend, would be expected to be returned to the Combined Group's shareholders through either a share buyback or special dividend. The method would be determined by the board of directors of the Combined Group considering all relevant factors at the time. Vistry may, in due course following Completion and a period of integration, review the Combined Group's capital allocation policy to confirm whether it remains appropriate in the context of the Combined Group and in consultation with shareholders.
Listing and trading of Vistry Shares
- The Vistry Shares will continue to be listed on the premium listing segment of the Official List and will continue to trade on the Main Market of the London Stock Exchange.
Information on Vistry
- The Vistry Group, being the combination of Bovis Homes, Linden Homes and Vistry Partnerships, is a leading national housebuilder with expertise and capabilities across all housing tenures and is one of the largest private sector providers of affordable housing in the UK.
- Vistry's shares are admitted to the premium listing segment of the Official List and to trading on the Main Market of the London Stock Exchange. Vistry's current market capitalisation is £1,617 million as at 2 September 2022 (being the latest practicable date prior to this announcement).
- The Vistry Group's Housebuilding business delivers high quality, traditional new homes through its leading brands, Bovis Homes and Linden Homes. The business has national coverage with 13 operating regions, each targeting annual output of between 550 and 625 units including joint ventures, giving an overall volume capacity for housebuilding of more than 8,000 units (2021: 6,551 completions). The business continues to make exceptional progress with its strategy of delivering controlled volume growth and significant margin progression from its existing business structure.
- The Vistry Group's Partnerships business, Vistry Partnerships, has a firmly established position within the fast-growing partnerships market. The business model combines higher margin mixed-tenure development and market resilient cash generative partner delivery. Vistry Partnerships has a strong track record and, most importantly, excellent, long-standing relationships across the broad partnerships' customer base, including housing associations, local authorities, Homes England, the private rented sector and elderly accommodation providers. The business currently operates from 14 business units providing national coverage, and is making excellent progress with its strategy of driving rapid growth in higher margin mixed-tenure revenues whilst maintaining a high ROCE in excess of 40 per cent. A key part of this strategy has been maximising the benefits of the larger Vistry Group, including access to capital, land buying capability, retail brand strength, and procurement savings and buying power.
Information on Countryside
- Countryside is a leader in the delivery of high quality mixed-tenure communities. Countryside's partnerships business has been a trusted partner of housing associations, public bodies and institutional private rental operators for over 40 years to deliver a balanced portfolio of affordable, private rental and private for sale homes, and playing a lead role in regenerating urban areas and creating new communities. The Countryside Group has been rated a five star housebuilder by the Home Builders Federation for the past three years.
- The Countryside Shares are admitted to the premium listing segment of the Official List and to trading on the Main Market of the London Stock Exchange. Countryside's market capitalisation was £1,140 million as at 2 September 2022 (being the latest practicable date prior to this announcement).
- The Countryside Group operates a mixed-tenure partnership model, developing sites with a mix of private, affordable and private rental units. Forward funding affordable and private rental units materially de-risks scheme delivery and reduces capital intensity.
- Historically, the Countryside Group operated a distinct Housebuilding division. Countryside announced on 7 July 2021 that it would focus all its resources on its successful partnerships business with the creation of a new Home Counties division. The Countryside Group has 15 partnership operating regions, including four in the Home Counties, giving good coverage across the UK.
- The Countryside Group places communities at the heart of everything it does, from understanding the needs of the communities and responding to the way it designs its developments, to working closely with its partners and clients to engage and empower people throughout the development process. The Countryside Group's commitment to sustainability is also focused, ambitious and impact driven and through a new approach to sustainability, it aims for every act of planning, design and construction to eventually create a positive impact for people and places.
- In the Countryside Group's trading update that was published on 7 April 2022, it identified certain issues underlying the Countryside Group's underperformance in the first half of its 2022 financial year. The Countryside Group has outlined its priorities in resolving these issues and has commenced implementing measures in response to those priorities.
Timetable and Conditions
- It is intended that the Combination will be implemented by way of a scheme of arrangement under Part 26 of the Companies Act (although Vistry reserves the right to implement the Combination by way of a Takeover Offer, subject to the Panel's consent and the terms of the Co-operation Agreement).
- The Combination is conditional on, among other things, the approval of the requisite majority of Countryside Shareholders at the Court Meeting and at the Countryside General Meeting. In order to become Effective, the Scheme must be approved by a majority in number of the Countryside Shareholders voting at the Court Meeting, either in person or by proxy, representing at least 75 per cent. in value of the Countryside Shares voted. In addition, a special resolution implementing the Scheme must be passed by Countryside Shareholders representing at least 75 per cent. of votes cast at the Countryside General Meeting. Following the Court Meeting, the Scheme must also be sanctioned by the Court.
- The Combination is also subject to the Conditions and terms set out in Appendix I to this announcement, including, amongst other things, the approval of Vistry Shareholders of the Combination at the Vistry General Meeting as a Class 1 transaction under the Listing Rules as well as the receipt of merger control clearance in the United Kingdom, to the extent required, as well as the further terms and conditions of the Scheme, to be set out in the Scheme Document when issued.
- The Scheme Document, containing further information about the Combination and notices of the Court Meeting and the Countryside General Meeting, will be distributed to Countryside Shareholders (along with the Forms of Proxy for use in connection with the Court Meeting and the Countryside General Meeting and the Forms of Election in relation to the Mix and Match Facility) in due course. For the purposes of paragraph 3(a) of Appendix 7 of the Code, the Panel has consented to an extension of the applicable date for posting.
- Vistry will prepare, publish and send to Vistry Shareholders the Vistry Circular and will prepare and publish the Vistry Prospectus. The Vistry Circular will summarise the background to and reasons for the Combination and will include a notice convening the Vistry General Meeting containing, among other things, the Vistry Resolutions to be proposed for the approval of the Combination by Vistry Shareholders at the Vistry General Meeting (or any adjournment thereof). The Vistry Prospectus is required in connection with the issue of the New Vistry Shares and their Admission. The Vistry Prospectus will contain information relating to the Combination, the Combined Group and the New Vistry Shares.
- The Scheme Document, Vistry Circular and Vistry Prospectus will each be made available by Vistry on its website at www.vistrygroup.co.uk/investor-centre/Countryside-offerand by Countryside on its website at www.countrysidepartnerships.com.
- It is expected that the Scheme Document, Vistry Circular and Vistry Prospectus will be published in early October 2022 and that the Court Meeting, the Countryside General Meeting and the Vistry General Meeting will be held on or around the same time during late October 2022 or early November 2022. Subject to the satisfaction or (where applicable) waiver of the Conditions, the Combination is expected to become Effective by the end of the first quarter of 2023.