The planned £2.5bn merger between British housebuilders Barratt Developments and Redrow Plc is expected to proceed, despite concerns raised by the competition regulator.
Barratt announced on Monday its plans to move forward with the acquisition of its rival, with the intention to begin the process this week. However, until the competition watchdog gives its final approval, the two companies will remain separate entities.
The Competition and Markets Authority (CMA) has been conducting an investigation into the merger and has expressed concerns that it could lead to higher prices and lower-quality homes in the Whitchurch region of Shropshire, where both firms have developments.
Barratt has stated that it is temporarily setting aside these concerns, as Whitchurch is just one of the more than 400 local areas where the two companies overlap. The company is confident that it will be able to address the regulator’s concerns and resolve the issue, removing the final obstacle to the deal.
At a national level, the CMA has not raised any concerns over the merger. Barratt believes that once the deal is finalized, it will provide certainty for staff, the supply chain, and other stakeholders. The company also expects the acquisition to accelerate the delivery of high-quality, sustainable homes and communities for customers across the UK, while also addressing the country’s need for more homes.
Following a court hearing scheduled for Wednesday, Barratt anticipates the CMA to impose an enforcement order on both firms, preventing them from integrating their businesses until the regulator is satisfied that its concerns have been addressed.
The companies aim to fully merge within 18 months of the acquisition. As a result of the merger, approximately 10% of jobs across the combined business are expected to be lost, resulting in savings of at least £90m per year for the company.
Barratt’s recent forecast predicts that it will build between 13,000 and 13,500 homes in the 12 months leading up to June 2025, a 7% decrease from the previous year.
The announcement on Monday coincides with the growing optimism surrounding the housing market, which has struggled with low demand due to high interest rates last year. It also follows the recent announcement by the Labour Party of a shake-up in the planning system, with the goal of constructing 1.5 million new homes within the next five years.
Russ Mould, from investment firm AJ Bell, believes that the concerns raised by the competition authorities were always surmountable, as they were limited to just one area in Whitchurch, Shropshire. He also noted that Barratt has waived the CMA clearance condition that was included in the deal.
While an enforcement order from the regulator is expected, Barratt and Redrow are prepared for it and will take necessary action to prevent the investigation from continuing. Mould also speculates that this could prompt Barratt’s main rivals, Taylor Wimpey and Persimmon, to pursue their own deals in response.
A spokesperson for the CMA stated that while they are aware of Barratt’s intention to complete the deal with Redrow, their competition concerns remain. They will take appropriate action to ensure competition is preserved while their investigation continues.
