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Housebuilder says it is not in shareholders’ ‘best interests’ to increase its offer

Redrow has walked away from its attempted takeover of rival housebuilder Bovis Homes, leaving Galliford Try as the only potential bidder for the troubled group.

A cash and share offer from Redrow was rejected by Bovis two weeks ago, but at the time Redrow said it believed the combination offered a “compelling opportunity”.

On Tuesday Redrow said its board “has determined that it is not in its shareholders’ best interests to increase its proposal to Bovis”, and it would instead focus on organic growth.

Bovis remains in talks with Galliford Try, the housebuilding and construction group, despite rejecting its initial all-share offer.

Under the takeover code, Galliford Try has until April 9 to make a fresh offer or walk away. A combination of the two would be the first big housebuilding merger since 2007.

Bovis’s shares were down 2 per cent by early afternoon to 853.5p, while Redrow’s were up 2.3 per cent to 511.5p. Galliford Try was down 1.4 per cent to £14.86.

Bovis has been floundering since an unexpected profit warning late last year prompted the resignation of its chief executive, David Ritchie. It then emerged that Bovis had been struggling to meet construction targets and as a result had been handing over unfinished homes to buyers, in some cases paying them thousands of pounds to move in early to meet planned completion dates.

Bovis’s share price has significantly underperformed the sector over the past seven years. It has said it would slow construction this year, overhaul its procedures and recruit a new chief executive to carry out improvements.

Galliford Try, which owns the housebuilder Linden Homes, said two weeks ago that it had initially offered an equity split of 52.25 per cent for its shareholders and 47.75 per cent for Bovis’s.

That would have valued Bovis at £1.19bn or 886p a share, a 7 per cent premium to the undisturbed share price. Galliford’s shares have since declined 5.7 per cent, while Bovis’s are up 3 per cent.

A combination with Bovis would enable Galliford to rapidly expand its housebuilding division and land bank, creating a top-five UK housebuilder with a market value of about £2.5bn and output of more than 6,700 homes a year.

The companies have several large shareholders in common, including the fund managers Standard Life and BlackRock.

Charlie Campbell, analyst at Liberum, said Bovis’s shareholders would need to weigh up whether any new chief executive would have enough positive impact on the share price to outweigh the premium paid in a takeover.

Reports last week suggested Bovis had approached Andrew Davies, chief executive of the construction group Wates, to take up the role.

Redrow had offered cash and shares equivalent to 814p a Bovis share. Any increase in the share component of its offer would have involved further diluting the stake held by its founder, Steve Morgan, who owns 40 per cent of Redrow.

Other housebuilders including Barratt Developments, the UK’s largest housebuilder, have examined Bovis’s books with a view to a possible takeover but decided not to proceed, according to people familiar with the process.