Taylor Woodrow yesterday became the second-biggest house builder in the UK after agreeing to buy its rival Wilson Connolly in a deal worth £705m.
The deal, however, will mean the loss of 300 jobs as Taylor plans to make £25m of cost savings each year.
This is 6 per cent of the companies' combined workforce, and head office jobs are likely to be most affected.
Taylorwill pay the equivalent of 233p in cash and shares for each Wilson share, valuing Wilson's equity at £485m. The deal also includes £220m of debt.
"We attracted a very good price for the company and got the best deal for our shareholders. The deal values us at 11.7 times earnings, way above the industry average," Graeme McCallum, the chief executive of Wilson, said yesterday. He is to join the board of the enlarged company.
The Wilson family, which owns 25 per cent of the company, will net £120m from the deal. Lynn Wilson, who acts as non-executive deputy chairman, is the only family member still involved with the company.
The consolidation is being fuelled by a shortage in the housing market, which helped drive up house prices by 25 per cent last year.
"This deal addresses the issue of scale. Land is becoming such a commodity," Ian Napier, the chief executive of Taylor, said yesterday.
"The fundamental economies of the house-building sector are very strong. Employment is high, interest rates are low and there is a shortage in new housing. While we are not going to see house prices rise as much as in 2002, that shortage will keep up a reasonable level of inflation," he said.
Mr Napier said Wilson was "the best fit of all the UK house builders" for giving its presence a geographical boost in areas such as the North-west, the North-east and East Anglia.
"We both steer clear of London, however," Mr Napier said. "That is where the housing market does look a bit sticky."
Following the acquisition, each of Taylor's existing regions will build 1,000 houses a year. The combined group will have a landbank of more than 37,000 plots, which is equivalent to a building supply of 3.6 years.
The takeover, including the debt, is the second largest in the UK housing industry.
Taylor and Wilson also yesterday reported profits for the first six months of the year.
Taylor's first-half profits before tax and amortisation rose 20 per cent to £130m, with turnover up 7 per cent at £1bn. Wilson's first-half profits before tax and amortisation jumped 58 per cent to £30m.
Shares in Wilson, which was founded in 1905 when Thomas Wilson converted a windmill into a house for his wife, yesterday rose 11 per cent to close at 232p.
Shares in Taylor also closed up, rising 10.5 per cent at 252.25p.
Taylor yesterday said it would look to sell its site in St Katharine's Docks, London, in the first half of next year. It is worth around £180m.
- More about:
- Business Strategy
- Dwelling Houses And Apartments
- Stock And Equity Market And Stock Exchange