UK housebuilder Redrow has said it will persist in its pursuit of Bovis Homes, despite discussions having been “terminated” while its target is continuing separate talks with rival suitor Galliford Try.
Bovis, which is searching for a new chief executive after a “difficult” year of missed targets, customer complaints and falling profits, confirmed over the weekend that the two groups had made rival takeover approaches.
Bovis said it had rejected both initial offers as being too low, adding that “Redrow subsequently indicated that it was not willing to improve the terms of its proposal and discussions were terminated”.
Redrow said on Monday, however, that it “continues to believe the potential combination offers a compelling opportunity”.
Discussions with Galliford Try are continuing over its all-share proposal valuing Bovis at 886p a share, or £1.2bn — a 7 per cent premium to Bovis’s share price after the close on Friday.
Bovis dismissed a cash-and-share offer from Redrow worth 814p a share.
Shares in Bovis rose 11 per cent on Monday. Redrow shares added 1 per cent while Galliford fell 0.5 per cent; all three companies are FTSE 250 listed.
Analysts said the possibility of the two bids being increased substantially was limited given the buoyant state of the land market and the risks involved in turning Bovis around.
“I think there is a limit — the land market recently has been very favourable,” said Aynsley Lammin, analyst at Canaccord Genuity. “You don’t assume as much risk buying raw land than you do buying Bovis.”
Analysts at Liberum described both bids as being “quite opportunistic” and pointed to other potential buyers. Charlie Campbell said that for foreign construction groups, Bovis offered “a way of getting a meaningful [UK] presence in one go”.
Mr Campbell cited Swedish builder Skanska as one potential buyer. It has worked on recent infrastructure projects such as Crossrail and made a brief foray into UK housebuilding in 2010. “If the desire to be in UK housebuilding is still there, this would be one way,” he said.
For Galliford Try, Mr Campbell calculated that the return on investment, once synergies were counted, was about 15 per cent compared with a potential return on buying land on the open market of 20 per cent.
Both Redrow and Galliford Try have until 5pm on April 9 under the Takeover Code to announce a firm intention to make an offer or walk away.
Last month Bovis said it was slowing down its rate of housebuilding after its “ambitious growth strategy that led to some operational challenges” last year.
David Ritchie resigned as Bovis chief executive in January after a profit warning, while the company said last month that it had set aside £7m to rectify problems in its newly built homes.
Bovis’s share price had dropped 31 per cent since its peak in August 2015. By close of trading in London on Monday the shares closed 10 per cent higher, at 910.5p, pushing them up 1 per cent over the past year.
