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U.K. Builders Woodrow, Wimpey to Merge

By Reuters
Monday, 26 Mar 2007 | 6:05 AM ET

U.K. housebuilder Taylor Woodrow has agreed to buy rival George Wimpey for 2.5 billion pounds ($4.9 billion) to create a market leader in Britain and combine businesses in a tough U.S. housing market.

The nil-premium, all-share deal is the biggest to date in Britain's fast-consolidating building sector and raised hopes of more to come as builders look for cost-savings to offset an expected slowdown in house prices and build up their land banks.

Britain's housebuilders have enjoyed a decade-long price boom, but many analysts believe the market is near a peak, or at least set to slow down, as buyers become increasingly stretched and the cost of borrowing rises.

The deal, announced on Monday, will create Taylor Wimpey, a 5 billion-pound company which will be 51% owned by Woodrow shareholders and 49% by those of Wimpey.

Woodrow shares surged more than 16% and Wimpey was up 5.8%. Rivals Persimmon, Redrow, Bellway and Bovis Homes also climbed on speculation they could be involved in the next big deal.

"The Wimpey-Taylor Woodrow deal makes good sense to me. It's a good strategic fit and the synergies they're targeting look realistic," said Numis analyst Colette Ord. She tipped Redrow as the next bid target and Persimmon as a possible buyer.

Taylor Wimpey will build around 22,000 homes in Britain each year, giving it a market share of about 12%, just ahead of Barratt Developments' which announced an agreed deal to buy Wilson Bowden for 2.2 billion pounds last month.

Taylor Wimpey will aim for at least 70 million pounds a year in cost savings from buying in bulk and also making job cuts, and the deal is expected to boost earnings for both sets of shareholders in the first year after completion, including synergy benefits and excluding one-off costs.

JOB CUTS

George Wimpey Chief Executive Peter Redfern told reporters there would be fewer than 700 redundancies, or less than 5% of Taylor Wimpey's workforce of about 14,000. Most of the job losses would be in Britain, he added.

Redfern and Taylor Woodrow Chairman Norman Askew will retain their respective positions in the new company.

Goldman Sachs analysts noted recent takeover deals have been done at an enterprise value of about 8 times earnings before interest, tax, depreciation and amortization (EBITDA) and that the nil-premium merger meant Woodrow and Wimpey remained valued at about 6.9 times and 7.5 times respectively.

But Numis's Ord said it would have been difficult for a UK-only housebuilder to buy either Woodrow or Wimpey, because of their exposure to the flagging U.S. market, and that tying the two together would help them cope with tough conditions there.

Taylor Wimpey will build around 9,000 houses in North America, combining both firms' operations in Florida, Arizona, Texas and California.

Redfern said Taylor Wimpey would look for small regional acquisitions in the United States, where rising interest rates and a loss of buyer confidence has hit the housing market.

In Britain, the firm would look to further expand its land bank and would not be interested in another big deal for the time being. Britain's housing market remained "pretty robust," despite three recent interest rate increases, Redfern said.

UBS and Morgan Stanley advised Woodrow on the deal, while JP Morgan Cazenove acted for Wimpey.

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