Redrow plc (LON:RDW) does not seem too bothered about the prospect of missing out on a merger with fellow house builder Bovis Homes PLC (LON:BVS).
The company revealed it would not be making an offer for Bovis, as it does not want to pay more than the 814p (in shares and cash) per share that was rejected by Bovis earlier this month. Based on last night’s closing prices, the value of that offer had declined to 785p per share.
Under City rules, Redrow cannot make an offer for Bovis for 12 months unless a rival bidder throws its hat into the ring.
“Redrow will instead continue to focus on its highly successful organic growth strategy that has delivered approximately 55% compound annual growth in pre-tax profits from financial years 2012 to 2016. Redrow's strong land bank and disciplined approach to its operations means it is well-placed to both continue to grow its profits and progressively increase dividend pay-out rates to 33% in the medium term,” the company said on Tuesday Morning.
Bovis shares edged 1.8% lower to 857p on the news, suggesting Redrow’s decision was not unexpected; Redrow shares hardened 1.5% to 507.5p in a flat market.
“We view Redrow’s decision this morning to step away from making an offer for, or looking to merge with, Bovis^ (BVS, HOLD at 873p) as a positive development,” said Shore Capital Markets/
“As Redrow highlights, organic growth is the best option in this cycle as it bypasses myriad problems that would arise from a merger of two healthy businesses and the doubtless greater problems where merging with a business that has highlighted its own trading pressures,” Shore’s Robin Hardy said.
Charlie Campbell at Liberum Capital Markets said Redrow’s withdrawal leaves the field clear for Galliford Try, whose indicative offer (0.563 Galliford Shares for each Bovis) is now worth around 848p.
“We stand by our view that it does not have to pay more than around 911-920p, which is where Bovis could trade with a strong new CEO appointed. Redrow's announcement is probably better news for Galliford Try's than for Bovis's shares,” Campbell opined.