Steve Morgan To Reacquire Redrow?

on Sep 25, 2012

According to The Times, Redrow (LON:RDW), the house building company, reported strong results on September 19, including a 70 percent increase in profits and double-digit margins. But the news of these achievements was overshadowed by another event that has grabbed attention. Steve Morgan, the executive chairman of Redrow, made a provisional offer for the company earlier this month and now has until next Friday to confirm his proposal by launching a formal offer.

Mr. Morgan founded Redrow 40 years ago and now has the opportunity to regain full control over the company. He made the approach through his Bridgemere Securities vehicle, which already owns 40 percent of the house building company. The provisional offer of £152 per share suggests a value of £562 million. The move was backed by Toscafund, a hedge fund investor led by Martin Hughes, and the buyout firm Penta Capital, which is associated with Tosca.

!m[](/uploads/story/449/thumbs/pic1_inline.png)The approach is being considered by a committee of non-executive directors, headed by Redrow’s deputy chairman Alan Jackson. However, Mr. Jackson declined to comment on the subject. “There is nothing on the table and there is nothing to discuss,” he said. He clarified that the approach doesn’t guarantee that there would be an actual offer and urged shareholders to resist taking any action.

Mr. Morgan had no comment on the possible acquisition of Redrow. However he talked very positively on the performance of the house building company, calling the reported results “brilliant”. Mr. Morgan mentioned that the industry, which faced the prospects of a significant collapse not so long ago, is currently in recovery. However, he acknowledged that there are still problems that the sector needs to overcome. He identified planning and mortgage availability to be some of the main issues.

“We are in a tough sector in a tough time,” he said.
Redrow, owner of the premium housing brand New Heritage Collection, said that its full-year revenue increased by nearly 6 percent to £479 million. The increase in revenue can be attributed to the higher prices on which the company has been selling private property with average selling prices rising by 17 percent to £204,100.

In terms of earnings per share, the company also reported a significant improvement, showing an increase of 80 percent to 10.8p. Its operating margin also saw an increase to 10 percent from 7.5 percent. According to Redrow the improved margins were a result of land sales and an improved product mix, or in other words – selling larger, premium midmarket family homes in higher-value markets.
Despite the strong results, the company won’t be paying any dividends to its shareholders this year. Some of its larger competitors, for example Berkeley and Persimmon, have pledged to return billions in dividends to their shareholders, but Redrow is planning to use the money to strengthen its London operations and to increase its landbank. Last year the company bought 4,100 plots and currently owns 12,350 plots.
Redrow’s shares closed at £155 last night, higher than the £152 price proposed in the provisional offer.


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