HUNDREDS of jobs are at risk after Barratt Developments announced this morning that it is poised to take over Redrow in a deal that values its fellow housebuilder at more than £2.5 billion.

Shares in Redrow surged nearly 15% today after it emerged directors will recommend shareholders accept the all-share approach from its rival. Barratt shares closed down nearly 6%.

The deal comes amid a challenging period for UK housebuilders, which have seen sales come under pressure from rising interest rates, though recent figures have suggested the market was beginning to show signs of recovery.

However, the acquisition could come at the cost of hundreds of jobs, with the takeover document stating that “operational and administrative restructuring will be required following completion” in order to realise the benefits of the acquisition. The document warns that there could ultimately be a 10% reduction in the total number of employees which, given Barratt employed about 6,730 staff at the end of 2023 financial year and Redrow had around 2,200, there could be as many as 890 jobs lost.

Barratt this morning reported an 81% fall in profit before tax to £95.2 million for the half year December 31, leading it to slash its  interim dividend to 4.4p from 10.2p at the same stage last year.

Total home completions dropped by 28.5% to 6,171, with chief executive David Thomas noting that it had been “carefully controlling our build activity, managing our costs, being highly selective in land buying, and driving revenue”. However, he said January had seen “early signs of improvement in both reservation rates and buyer sentiment, helped by expectations of lower interest rates and the introduction of more competitive mortgage rates”.

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The Barratt offer for Redrow values the company at approximately £2.524 billion and represents a premium of around 27.2% to the Redrow closing price of 600p on February 6, the last business day before the announcement.

Under the deal, Barratt shareholders would hold about 67.2% of the combined group, which would be called Barratt Redrow, and Redrow shareholders around 32.8%.

Redrow’s biggest shareholder Steve Morgan, who founded Redrow 50 years ago, has given his backing to the proposed combination, a statement to the stock market said.

Bosses say the combination would result in annual cost savings of at least £90 million per year by the end of the third year after completion.

Susannah Streeter, head of money and markets at stockbroker Hargreaves Lansdown, said: “The economic winds have not been kind to the housebuilders and Barratt Developments and Redrow clearly believe they’ll be stronger together, giving the new combined company much bigger clout to capitalise on the structural need for housing in the UK.

“Redrow’s share price has struggled to regain its pre-pandemic form and with Barratt enjoying a strong balance sheet and hefty cash reserves it clearly decided the time was right to make a move. Clearly market conditions are still going to be tougher while interest rates stay elevated. However, the latest signs are that recovery is under way, with the Halifax house price index pointing to renewed sentiment among buyers, as better mortgage deals have landed.”

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Mr Thomas, who will be chief executive of the combined group, said: "We have great respect for Redrow, its overall strategy, its leadership and employees, and its high-quality homes and communities. This is an exciting opportunity to bring together two highly complementary companies, creating an exceptional homebuilder in terms of quality, service and sustainability, able to build more of the high-quality homes this country needs.

“The combined group would leverage the respective strengths of both Barratt and Redrow, delivering significant benefits to our people, our supply chains, and - most importantly - our customers."

Matthew Pratt, group chief executive of Redrow, said: "Redrow and Barratt combined creates a leading UK homebuilder. Together, we'll be in a much better position to offer a broader range of high-quality and energy efficient homes to customers.

“The Redrow brand, with its premium, characterful homes, has an excellent reputation and will remain a key part of the combined group. As with Barratt, Redrow's fifty-year success story is based on its people, products and supply chain partners. Both businesses are a great fit and there are many exciting opportunities to innovate and share knowledge across a range of different areas."

Mr Morgan said: “During the 50 years since I founded Redrow, I could not be more proud of the unique reputation it has earned for building premium homes and thriving communities.

“Barratt is a home builder I have long admired due to their likeminded attention to quality. I am confident that the Barratt / Redrow combination with their three high-quality complementary brands, will create a standout home builder for the future and accelerate the delivery of much needed homes across the UK."

Shares in Redrow closed the day up 88.5p at 688.5p. Barratt shares tumbled by 29p to 501p.