IT was perhaps not surprising this morning to read news of major consolidation in the housebuilding sector.

Given the pressure that the major housebuilders have come under as interest rates surged over the course of 2022 and 2023, with reservation rates falling and profits tumbling as the cost of mortgages has risen, it was perhaps inevitable that defensive moves were made.

The stock market seemed to respond warmly to the news that the board of Redrow had recommended shareholders accept a £2.5 billion takeover approach from its bigger counterpart, Barratt Developments.

Shares in Redrow rose nearly 16% today, which indicated the City liked the look of the deal, especially as it is anticipated that annual savings of £90m will be made by the end of the third year following completion of the deal.

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However, the deal 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.

While shares in Redrow surged, the price of Barratt Developments moved in the other direction, as the company reported an 81% fall in interim profits to £95.2 m for the six months to December 31 and slashed its interim dividend to 4.4p from 10.2p.

“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,” said Susannah Streeter, head of money and markets at stockbroker Hargreaves Lansdown.

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“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.”