£2.5bn housebuilder mega-merger faces competition hurdles from regulator
Barratt’s £2.5bn deal to acquire Redrow Homes has ignited competition concerns in Shropshire which must be addressed by the housebuilder in order for the deal to proceed.
The shareholders of Leicestershire-based Barratt and North West’s Redrow voted in May to progress the mega-deal, to create a group that turned over £7.5bn last year and will have a land pipeline of over 92,000 plots.
The Competition and Markets Authority (CMA) has said its Phase 1 investigation found local competition concerns around a Barratt development in Whitchurch, Shropshire, which includes nearby towns such as Nantwich, Ellesmere and Market Drayton.
Both housebuilders currently have a high combined share of land in the catchment area around the Barratt development at Tilstock Road, with the addition of Redrow’s development at Kingsbourne in Nantwich. If the deal goes ahead, the CMA found that it could lead to higher prices and lower quality homes for homebuyers in this catchment area.
Barratt and Redrow said in an update to the stock exchange that the merger has raised competition concerns in “only one of the more than 400 local areas where the two companies overlap”.
The pair has now “identified undertakings which we believe will address those concerns” and this 11-mile area contains four Barratt developments and a Redrow development that has fewer than 10 plots remaining to sell.
Its proposed undertakings will “seek to address the future conduct of sales and build on the Redrow site. No land disposals are being anticipated or proposed”.
Once the deal is completed, the CMA says the merged business will continue to face competition from rivals nationally and in all other overlapping local areas, including from other large and smaller regional housebuilders, with additional constraints coming from homes sold via the second-hand market.
Whilst the deal did not raise UK-wide competition concerns, the CMA said it’s aware there may be further consolidation amongst housebuilders in the UK and is committed to carefully assessing mergers in the housebuilding market further, both on a national and local level.
Barratt and Redrow now have until August 15 to submit proposals to address the CMA’s concerns. If none are received, then the CMA’s investigation could progress to a more in-depth Phase 2 review.
David Thomas, Group Chief Executive of Barratt, said, “We are pleased that the CMA has found there would be no harm to competition in all but one of the areas in which Barratt and Redrow overlap.”
“We remain confident that the combination of Barratt and Redrow will be approved and that it is in the best interests of our customers and wider stakeholders. Together we plan to build on our shared strengths and create an exceptional homebuilder, in terms of quality, service, and sustainability, helping to deliver the homes the country needs.”
Matthew Pratt, Group Chief Executive of Redrow, said, “Barratt and Redrow are two leading housebuilders, with strong reputations for quality, service and sustainability that have been decades in the making. Once the CMA process has completed, we are looking forward to our future as one team, accelerating the delivery of high-quality homes that the country so urgently needs.”
The merger could also result in 800 jobs being axed. Barratt currently employs 6,000 people and Redrow 2,300, but bid documents show that the combined company expects to reduce its workforce by about 10%.
Joel Bamford, executive director for Mergers at the CMA, said: “Prospective homebuyers must not be disadvantaged as a result of deals like this one – with the potential loss of competition leading to even higher house prices or lower quality homes.
“Our initial investigation found concerns specifically in one area in and around Whitchurch, the companies now have the opportunity to agree workable solutions which address our concerns rather than move to a more in-depth investigation.”
