It looks like the bid sign hanging over Bovis Homes PLC (LON:BVS) has been removed following news today that smaller rival Galliford Try plc (LON:GFRD) has withdrawn a merger proposal and the FTSE 250-listed firm has appointed a new, permanent chief executive officer.
However, not everyone is convinced that Bovis is still not “in-play” having rejected two bids in the months since its former boss David Ritchie quit in early January just a week after the group cautioned that new house sales this year will be lower than expected due to completions in December falling short.
Bovis today named Greg Fitzgerald, ironically a former chief executive and chairman of Galliford Try as its new boss. He will take over with effect from April 18 2017, when interim CEO Earl Sibley will resume his role as the FTSE 250-listed’s group finance director.
WATCH: New boss looks a "good move" ...
In a note to clients today, Shore Capital analyst Robin Hardy noted that Fitzgerald grew Galliford very strongly from 2009 “taking that business from building 1200 units a year to more than 3,000 over 3-4 years.”
He said: “This is an interesting appointment but is it strong enough to beat the value that might have arisen from a bid or merger? We don’t think so and still see that the ‘fat’ that Bovis is carrying from the merger discussions will need to be shed.”
Hardy added: “There have been suggestions that an offer could come from outside the industry and while that is a long-shot, it is possible and many observers will still view Bovis as being ‘in play’.”
But he concluded: “We remain generally cautious on Bovis, we are not convinced that we have yet seen all of the bad news from the production problems unveiled since the Dec 28th profit warning and do not think that investors should have too much faith in there being a fresh offer.”
Take profits? …
Hardy recommended shareholders to ‘take profits’ on Bovis shares, which in late morning trading today were 3%, or 26.0p higher at 872.5p, with the stock up 6% in the year-to-date having dropped sharply following December’s profit warning.
Meanwhile, Neil Wilson, senior market analyst at ETX Capital asked: “Two suitors rebuffed, will there be a third?”
Together with the all-share merger proposal from Galliford, which was pitched around 886p – a 7% premium to Bovis’ share price at the close on March 17, the Friday before the approach was confirmed – the housebuilder also rebuffed an approach from Redrow plc at the same time.
Bovis said Redrow approached it on 27 February with a proposed share and cash deal, worth the equivalent of 814p per share, which was described as “low-ball”.
Discussions with Redrow had been terminated immediately, but discussions with Galliford had continued until today’s announcement.
However, Wilson added: ““Berkeley Group Holdings PLC (LON:BKG) has been talked about but it looks highly unlikely now, not least because of the appointment of Fitzgerald.”
A newspaper report at the end of January said Schroders Investment Management – which owns around a 6.4% stake in Bovis, its second largest shareholder - had suggested Berkeley should launch a takeover bid for the firm.
Land cheap …
The ETX analyst continued: “Whilst Bovis had made itself vulnerable to a takeover after warning on profits the problems it has are fixable from within. Tackling a failure to meet construction targets, poor relations with contractors – these are not fundamental issues with the business or its model.”
“Moreover,” the analyst added, “the case for a merger at present is not as strong as it might be – land prices are cheap, so growth can be more easily achieved by buying more land, rather than merging.
“Housebuilders can pick and choose sites rather than be left with a bank of land acquired from a rival – acquired at a premium - that might not fit its model.”