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Redrow names independent directors to consider buyout

by Jonathan Braude | Published August 31, 2012 at 12:57 PM

U.K. homebuilder Redrow plc acted swiftly Friday, Aug. 31 to respond to a takeover approach from its chairman, Steve Morgan, appointing a committee of its independent directors to consider the offer, backed by both a hedge fund and a private equity fund. It values the target's share capital at £562 million ($889 million).

Urging shareholders to take no action at this stage, the company said little more than that it would examine the all-cash offer of 152 pence a share. But the committee, to be led by nonexecutive deputy chairman and senior independent director Alan Jackson, is understood to view Morgan's initial approach as offering a low premium.

Morgan's vehicle, Bridgemere Securities Ltd., made the approach with hedge fund manager Toscafund Asset Management LLP and midmarket private equity firm Penta Capital LLP. Calling the approach a "strong value proposition, when considered in the context of Redrow's share price performance in recent years," it said the offer was at a premium of 23.8% to Redrow's 90-day volume-weighted average price of 122.7 pence per share.

However, in a regulatory announcement Bridgemere conceded its announcement had come in response to recent share price movements, which had pushed the stock up 5.5 pence to 151 pence during the course of trading Thursday. Under U.K. Takeover Panel rules, now that the approach has been made public, Bridgemere has until Sept. 28 to make a formal offer or walk away.

Redrow was up a further 4.4 pence, or 2.91%, by midday Friday, apparently suggesting the market also expected a better premium. However, as analysts at Panmure Gordon & Co. plc pointed out in a note, the Bridgemere concert party already holds 54% of the share capital. It also noted that the small premium to the company's net asset value of 150 pence (on Dec. 31, 2011) compared to the 25% discount to NAV at which the company had traded for most of the past six months and was the most that was likely to be on offer.

"152 pence is a good level to set our target price as we see rival bids as unlikely," the Panmure analysts said.

Morgan, who founded the Ewloe, Wales-based construction company in 1974 and floated it in London 20 years later, is the largest shareholder. He increased his stake to 40.4% in a share-placing that raised £78 million for the company, net of expenses, in April. Toscafund owns 13.8% of the company.

Analysts also looked at what effect a bid would have on other players in the residential housing sector.

A note from Citigroup Global Markets Inc. said that the company was trading at about 1 times book value, while others in the sector were largely trading at about 0.9 times book and were "likely to see a positive read across" from an offer.

However, they said Morgan's large shareholding was "unique within the sector" and added: "We would not expect to see a new wave of corporate activity within the sector but we would expect a positive reaction in sector share prices."

Panmure took a similar view, calling the situation "Steve Morgan-specific."

Pointing out that four other rivals -- Barratt Developments plc, Bellway plc, Taylor Wimpey plc and Bovis Homes Group plc -- were also trading at discounts to NAV, Panmure's note said: "We would not necessarily see this as a catalyst for further bids in the sector. That said, we suspect that those stocks trading on discounts may see a small bounce in their share prices."

The bidders are advised by Mark Warham and Derek Shakespeare of Barclays plc. Redrow's independent directors are advised by Andrew Tusa, Ken McLaren and Edward Stratton of Bank of America Merrill Lynch.

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Redrow names independent directors to consider buyout

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