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Shares in housebuilder Crest Nicholson dropped more than 18 per cent on Tuesday after larger rival Bellway pulled the plug on a possible takeover, in the latest blow to the struggling UK developer.
The two groups had appeared to be in the final stretch of a deal last month, when Crest Nicholson’s board said it was “minded” to recommend Bellway’s third, sweetened offer valuing its equity at £720mn.
Bellway last week said it needed more time to “fully conclude due diligence”, and the UK’s Takeover Panel extended the deadline for the housebuilder to make a firm offer until August 20. But Bellway said on Tuesday it had decided not to make a firm offer.
Shares in Crest Nicholson closed down more than 20 per cent, while Bellway stock rose 4 per cent.
Crest Nicholson — which built about 2,000 homes in its last financial year — has been plagued by profits warnings over the past 12 months and incurred costs related to safety, maintenance and quality issues at its completed developments. In June, it announced a £31.4mn charge for remediation costs following a review of legacy sites with external consultants.
Housebuilders across the sector have also been suffering from a downturn in new home sales brought on by higher mortgage rates, driving a spate of consolidation. Barratt is moving ahead with a £2.5bn acquisition of Redrow, while L&G is in the process of selling Cala Homes.
The collapse of the Bellway deal sets up a challenge for Crest Nicholson’s new chief executive Martyn Clark, a former Persimmon executive, to turn around the FTSE 250 business.
Crest Nicholson’s board had rejected Bellway’s two previous proposals as undervaluing the company. Bellway subsequently increased its bid to 273p a share — a premium of 28 per cent to Crest Nicholson’s closing share price on June 13 — which the latter said last month was “at a value that it would be minded to recommend unanimously” to shareholders.
On Tuesday Bellway said it “remained confident” that its “robust balance sheet and operational strength, combined with the depth and quality” of its land bank, would enable the group to “deliver volume growth in the years ahead and support ongoing value creation for shareholders”.
Crest Nicholson could also see a renewed proposal from Avant, the housebuilder owned by New York-based hedge fund Elliott. Avant in July made an approach to combine with Crest Nicholson to form a larger listed group. Crest Nicholson rebuffed Avant’s approach at the time, saying it did not want to engage while also negotiating with Bellway.
Crest Nicholson on Tuesday said it “remains confident in its standalone prospects”.
Anthony Codling, analyst at RBC, said any future suitors would probably offer less than Bellway, “given that [Bellway] have had plenty of time to look under the bonnet and kick the tyres and chosen not to proceed”.
“Bellway’s engine is firing on all cylinders, so we question whether it needs to buy the misfiring Crest Nicholson,” Codling said. “It seems Bellway have decided it ain’t broke, there is nothing to fix.”
