Which is more annoying? Moving in to your brand new Bovis home, looking for the window/carpet/guttering/mains electricity/unflooded floor area that you were expecting (delete as applicable), and finding there is none? Or telephoning Bovis, asking to speak to the customer services director, and finding there isn’t one of those, either?
It’s probably the former. But the latter cannot have gone down too well with windswept homeowners standing in the dark in unplanned concrete water features last December.
Bovis has already paid a price for this (slap) dash for growth: a £7m bill for “de-snagging” — ie actually finishing — unfinished homes, a profit warning, the departure of its chief executive David Ritchie, and an attempt by one shareholder — Andy Brough of Schroders — to broker a merger with rival Berkeley.
Now, two other rivals have indicated the price they are willing to pay to put the business right. Redrow has bid £8.14 in cash and shares — or a 2 per discount to Bovis’ undisturbed share price. One person familiar with a Bovis hi-vis jacket called it a “cheeky lowball offer”. Galliford Try, by contrast, has proposed an all-share merger, giving Bovis investors 47.75 per cent of a combined group and valuing their shares at £8.86 — or a 7 per cent premium. This, says the person in the hard-hat with the can of east European lager, is “not too far away”. Clearly, the market agrees, as Bovis shares have hit 911p.
But why would anyone pay a premium for a housebuilder that, until three weeks ago, was trading below its net asset value? A premium buys a management that has presided over a 210 basis point fall in operating margin to 15.2 per cent — some 350 basis points worse than the sector average. And it buys the kind of expertise that, until recently, thought it unnecessary for anyone at head office to be in charge of customer services.
What it does not appear to buy, however, is significant cost synergies. A pure-play housebuilder — which Galliford is not — might succeed in reverting that margin to the mean. But what then? Past housebuilding mergers have cited cost synergies of only 1-1.5 per cent of combined gross revenues. By definition, builders operate in hundreds of separate locations, each with minimum overheads and at the mercy of tight local labour markets. All a combined group stands to gain is materials purchasing power, and the chance to a make a recently-hired customer services director redundant. Not huge savings.
This may not deter Galliford. Bovis comes with 25,000 plots of strategic land in south and south-east England, and some operational quick fixes. But it suggests Redrow’s price, not Galliford’s, is nearer the mark. No other pure-play housebuilders are likely to bid, for one simple reason: they can achieve better returns on their own land purchases at a slower organic growth rate. They might not get as many houses built. But they will keep the rain out.
Old firm commitment
The Appeals Board of the Takeover Panel on Monday upheld a finding that Dave King, chairman of Rangers International Football Club, acted in concert with others to buy shares at 20p in late 2014, writes Kate Burgess. That took the group’s combined holding to 34 per cent, which means Mr King must now make a mandatory offer for all remaining shares at 20p.
It looks like a bit of a sideshow — and two years too late. Rangers was delisted from Aim in 2015, and its shares last traded (privately, via the JP Jenkins platform) at 27.5p in November. But the Panel clearly believes it is the principle that counts. And if Mr King doesn’t play ball, the next match will be in court — a first for the Panel.
Mr King insists few shareholders today would sell at 20p and says he cannot see “how making an offer that is doomed to fail can benefit RIFC’s shareholders”. He says he “will take the appropriate time to reflect. and consider the best course of action for myself”. But if he is so sure that no one will be interested, what action is he contemplating? Suddenly the impact of the Panel ruling looks more interesting.
Key of A-flat miner
Might vacant chairs at three of the biggest mining companies — now that Jan du Plessis is stepping down at Rio Tinto — offer scope for governance reforms? Anglo American, from which Sir John Parker departs this year, suggests they could.
After more than 40 per cent of the votes at last year’s London investor meeting were cast against its pay plans, Anglo has made big changes: a cap on share awards, and a stripping out of commodity and currency moves from key performance metrics. But whether Rio and BHP follow suit may depend on the hemisphere with which their new chairs are aligned. Anglo’s remuneration committee chairman, Sir Philip Hampton, drily noted “the sometimes different perspectives of UK and South African shareholders”.