Shares in Bovis (BVS) jumped 11 per cent after the housebuilder revealed that it has been approached by both Galliford Try (GFRD) and Redrow (RDW) with merger proposals. Both approaches have been rejected by the Bovis board, who are currently working to revive company fortunes while also looking for a new chief executive. However, discussions are ongoing with Galliford Try.
The Galliford Try proposal is an all-share merger, with the equity split 52.25 per cent to Galliford Try shareholders and 47.75 per cent to Bovis shareholders, which would value Bovis's shares at 886p. But the share price has moved significantly higher than this, suggesting that investors expect Galliford to sweeten the terms of its offer. Speculation that a rival builder could make a bid began after suggestions by one of Bovis's largest institutional shareholders that someone should make an offer. This followed a miserable few months when the underperforming builder issued a profit warning followed by the resignation of its chief executive.
Redrow's proposal would have seen Bovis shareholders receive 125p in cash per share and 1.32 new Redrow shares, while remaining entitled to a 30p per share final dividend. However, this added up to a discount to last Friday's closing price and following its rejection, discussions were terminated. Galliford Try has until 9 April to make a firm bid or to indicate that it does not intend to make an offer.
If Galliford and Bovis were to merge, it would create a top-five housebuilder worth £2.5bn building more than 6,700 homes a year. The enlarged group would also have a much enhanced geographical spread. The £1bn Bovis land bank is focused on southern England, while Galliford Try tends to operate more in the west, south-west and the east Midlands.
Any merger would be the largest among publicly quoted housebuilders since 2007, when George Wimpey joined forces with Taylor Woodrow to form Taylor Wimpey (TW.) However, the latest merger situation is more Bovis specific and is not expected to prompt a rash of takeover bids among the other major builders. Analysts at UBS estimate that a merger could generate cost synergies of £30m-£40m. Assuming that management could increase the inferior return on capital at Bovis to more in line with the sector average, profits could be £100m higher.
