Takeover speculation set to lift housebuilders' shares

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The Independent Online

Analysts are predicting a new wave of consolidation in the housebuilding sector after Persimmon launched a £644m offer for its smaller rival Westbury.

The two sides are set to resume negotiations this week, with Westbury's advisers confident they can squeeze a few extra pennies on top of the 560p-per-share offer made by the UK's No 2 housebuilder by volume.

The friendly deal, which is expected to be finalised within a fortnight, was being seen over the weekend as a potential trigger for a new round of acquisitions, akin to that in 2001 when Persimmon paid about £560m for Beazer Homes.

Crest Nicholson and Taylor Woodrow were among the companies tipped as potential bid targets, while analysts believed merger deals are possible as rivals re-examine the benefits of scale in a housebuilding industry beset by planning delays and raw materials and wage inflation.

Traders said fund managers would once again discuss the possibility of a re-rating for the sector. Traditionally, valuations have been among the lowest on the stock market, in part because of the profit collapses and bankruptcies triggered by the housing crash.

In recent months there has been growing speculation that private-equity and hedge funds - which are managing record amounts of money but finding fewer opportunities for investment - might be examining the possibility of acquisitions in what is by normal standards an under-leveraged sector.

Mark Hughes, the building sector analyst at Numis Securities, told investors to seek other bargains among the housebuilders.

"Following the potential bid approach for Westbury - potentially one of the biggest stories in the sector for years - we have upgraded Taylor Woodrow, Westbury and Wilson Bowden recommendations," he said. "A consolidation story and a potential 'Persimmon in the FTSE' story are both positive, and both counter the negative margin outlook story for 2006. We have highlighted Westbury as a potential takeover candidate for more than two years now, and given the stock has traded close to its net asset value recently, it has looked likely."

Persimmon's advisers say it would have come under increasing pressure to return cash to shareholders if it could not find a big acquisition. The purchase of Westbury, which makes about 4,200 homes a year, would return Persimmon to the top slot in terms of numbers of homes built, with a combined total of about 17,000. Synergies of more than £20m are expected if the deal is agreed.

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