14th Jun 2024 11:55
(Alliance News) - The rationale for Bellway PLC's bid for Crest Nicholson Holdings PLC was viewed as "solid," although by going public it runs the risk of being trumped by a rival suitor, analysts said.
On Friday, Crest Nicholson said it had rejected an all-share offer bid approach from Bellway.
The Surrey, England-based property developer said it received an initial all-share offer from Bellway on April 25 which it rejected. A revised plan put forward on May 7 was also turned down.
The second proposal would have seen Crest investors receive 0.093 shares in Bellway. Based on the Bellway share price of 2,718.00 pence at Thursday's close, the revised proposal valued Crest shares at 253.00 pence each.
Shares in Crest Nicholson rose 8.5% to 230.80 pence in London on Friday giving it a market value of GBP593 million. Shares in Bellway fell 4.3% to 2,602.20p, valuing it at just over GBP3 billion.
Bellway highlighted the "compelling strategic and financial rationale" behind a combination but Crest Nicholson was not convinced.
After evaluating the revised proposal with financial advisers, the board of Crest rejected the offer having concluded that the offer "significantly undervalued" the company and its future stand alone prospects.
However, on Thursday Crest Nicholson warned financial 2024 adjusted pretax profit would be between GBP22 million to GBP29 million. Broker Peel Hunt pointed out this was well below the current market consensus of around GBP40 million.
Crest Nicholson said the spring selling season started well but that momentum has softened since.
Peel Hunt said the combination with Bellway would bring obvious synergies to the enlarged group, including better buying power, more efficient divisional structures, and reduced central costs.
The broker explained historically, synergies across the sector have been in the range of 3% to 4% of sales, implying around GBP25 million to GBP30 million in cost savings.
"The addition of another established brand to the group would enhance optionality around land buying, opening up the possibility of acquiring larger sites," Peel Hunt commented.
But Peel Hunt said by going public Bellway "clearly opens" the company up to further bids, both from Bellway and the wider sector.
The broker touted Persimmon PLC as an "obvious" potential suitor, noting it would also benefit from another brand.
"Meanwhile, in the private space, a number of mid-sized builders in private equity hands might seize the opportunity to ‘twist’," the broker suggested.
Liberum agrees there is the possibility that another housebuilder gate crashes the deal. It estimates that Bellway could increase its offer for Crest Nicholson up to 295p per share.
Davy Research said the rationale of the deal is solid, with scale advantages and operating synergies available to create value.
"A combination of these two companies would create a group which has historically delivered 14,000 to 15,000 units in a single year," it noted.
AJ Bell's Russ Mould predicted an "M&A dance," until Bellway gets the deal over the line.
"Crest Nicholson’s profit warning yesterday made for miserable reading so its investors might welcome a nice bid premium to dig them out of a hole," he suggested.
By Jeremy Cutler, Alliance News reporter
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