Two of the UK’s largest housebuilders are to merge after Vistry Group agreed a £1.3bn cash and shares deal to take over smaller rival Countryside.
The deal would represent a victory for two US activist investors in Countryside, Browning West and Inclusive Capital Partners, which have been pushing for a sale of the company.
The takeover would give Vistry increased scale as the housebuilding sector braces for an expected UK recession amid high inflation, threatening to put to an end a very strong housing market during the coronavirus pandemic in which prices rose rapidly, buoyed in part by a stamp duty holiday.
The companies said they would aim for “meaningful cost synergies” of £50m a year. Vistry also highlighted Countryside’s “partnerships” business building developments for institutions such as local authorities, which it said “offers greater resilience to the cyclicality of the housing market”.
Vistry, a member of the FTSE 250 index of mid-cap companies formerly named after its Bovis Homes brand, was valued at £1.6bn before the deal, while Countryside was worth £1.1bn. Countryside shareholders would receive 0.255 of a share in the new company and 60p in cash for every Countryside share they held, leaving them with about 37% of the merged business.
If voted through by shareholders, the deal would propel Vistry from the seventh biggest UK housebuilder by turnover to roughly the fourth biggest. Vistry built more than 6,500 homes in 2021, while Countryside built nearly 5,400.
The activist campaign at Countryside followed a difficult 12 months during which its value has slumped by more than half. In January it ousted its chief executive as it revealed that trading was worse than expected even as rivals had cashed in, and in June it formally put itself up for sale shortly after rejecting an offer from Inclusive.
The deal, at an implied value of 249p for each Countryside share, represented a premium of only 9% to its closing share price on Friday shortly before the deal was announced, which was 228p. That was far below its peak at above 560p a share in August 2021.
However, Browning West, Inclusive and three other hedge funds holding a combined 39% of the company have promised to vote in favour of the deal.
Countryside shares rose by 6% on Monday morning after the deal was announced, while Vistry shares edged down by 0.4%.
Greg Fitzgerald, the Vistry chief executive who would lead the combined business, said the deal “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,” he said.
Vistry will fund the deal with debt arranged by HSBC, but it promised to keep debt levels to only 10% of its equity.
