Berkeley to return £1.4bn after rejecting buyouts

Tony Pidgley, the managing director of Berkeley Group, the residential property developer, will earn £24m from his personal stake in the company after its decision to hand back cash to shareholders.

Tony Pidgley, the managing director of Berkeley Group, the residential property developer, will earn £24m from his personal stake in the company after its decision to hand back cash to shareholders.

The company has rejected management buyout proposals from private equity groups and instead, after a strategic review, plans to return a total of £1.4bn to shareholders over the next six years, with £600m being paid out this year alone. Berkeley shares surged 29 per cent to 1197p in response to the news.

"Management buyouts have been put to us but this aligns the interests of the company with my staff and shareholders," said Mr Pidgley, who founded Berkeley as a housebuilder in 1976. He said he did not favour buyouts because they presented management with a conflict of interest in having to negotiate a purchase of a company that they are also paid to run.

The most likely method of handing back the cash is expected to be through an issue of B shares that can subsequently be redeemed for cash at set dates in the future.

Mr Pidgley has 2 million shares in Berkeley, which said it would hand back the equivalent of £12-per-share to investors. The capital is being released by Berkeley after it took the decision to quit high-volume, green-field housebuilding and concentrate on urban regeneration sites instead.

Mr Pidgley said: "The capital required for this more focused business enables Berkeley to propose to return £12-per-share to shareholders in cash over the next six years to 2010, a total of over £1.4bn, and maximising the value of the resulting company.

"The board believes this is a unique way of enhancing shareholder value while retaining sufficient working capital to fully realise the value within our current and future land holdings."

Berkeley also announced annual results yesterday, reporting a 4.1 per cent increase in profits to £230.2m on turnover up 10.6 per cent at £1.2bn.

Berkeley decided to get out of traditional housebuilding after seeing returns diminish. A decade of falling interest rates has encouraged more capital into property development, driving down profit margins.

Urban regeneration of brown-field sites tends to have higher barriers to entry because it involves more complicated sites that have to be cleared before building can start. The company will specialise in flats and small houses in urban developments which Mr Pidgley believes will enjoy growing demand despite the apparent trend for people to want to move out of large urban areas into the countryside. Mr Pidgley said: "If you are married with two kids you're probably not going to want to live in a city but there is also a period in people's lives when they are older when they want to enjoy life and it is the one- and two-bedroom flats that sell. There is a big investment market as well."

Urban living is also increasingly popular with younger people without families. However, a more affluent older generation represents the biggest market.

"Demographics work in our favour. There is an ageing population who want to buy properties having retired early, despite what you read about the retirement age, who want a nice big flat where they can entertain and live securely with underground parking," Mr Pidgley said.