Homebuilding Consolidations Drive Stocks Upward

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LONDON-Hopes of a round of consolidations among UK homebuilders have driven shares in the sector higher. Westbury led the surge after Persimmon revealed it had approached its rival about a takeover. Analysts believe a bid would value Westbury at euro 947 million ($1.1 billion).

If the deal goes through, Persimmon, which is five times bigger than Westbury, would overtake Barratt as the UK’s biggest builder by the volume of homes that it sells each year. It is already the UK’s largest homebuilder by profit.

The firm has a track record of making large acquisitions, such as its 2001 takeover of Beazer, a euro 831-million ($971-million) play. Today , the firm is valued at more than euro 4.1 billion ($4.8 billion) and is on the brink of a place in the FTSE 100 Index.

But analysts questioned whether rivals would allow Persimmon a clear run at Westbury, while speculation of other potential deals pushed up shares of homebuilders. “We wouldn’t rule out some of the smaller players in a tie up such as Redrow and Bellway or Bovis,” says one analyst. “The larger players that may look vulnerable are Wilson Bowden and Taylor Woodrow. The need to acquire land more cheaply, given difficult trading conditions, could spur Barratt or George Wimpey to launch counter raids for Westbury.”

The vulnerability of Westbury to a takeover has grown since it posted a 26% drop in half-year profits toward the end of last month. In common with many of its rivals, Westbury has been spending more on marketing and offering larger incentives at a time when labor costs and raw material costs have been rising. Its core Westbury Homes division sold 1,934 houses during the six-month period, down from 2,087 in the same period last year.

Shares in Westbury jumped 20% while Persimmon gained 6.7%. Bellway, Wilson Bowden and Barratt Developments all gained around 3% on the news.