Redrow Takeover Fails after Chairman Ends Negotiations

A proposed takeover of British homebuilder Redrow (LON:RDW) fell through after talks between the company and a consortium of private equity firms led by Redrow’s executive chairman Steve Morgan were terminated, The Times reported on 19 October 2012.

**Morgan’s Buyback Attempt**
Steve Morgan, who also owns Wolverhampton Wanderers FC, founded Redrow in 1974 as a small civil engineering business with the help of a £5,000 loan from his father. The company floated on the stock market in 1994 before Morgan stepped down as chairman in 2000. He returned in 2009, following a boardroom coup, and has been building up his stake in the company since.

In May this year, Morgan bought 15.4 per cent of Redrow’s stock, lifting the stake he controls to 40 per cent. At the end of August, the chairman made a further push towards a buyback of the company by tabling a 152 pence-a-share proposed bid, valuing Redrow at around £560 million. The takeover offer, made by the entrepreneur’s Bridgemere Securities vehicle, had the backing of Redrow shareholder Toscafund, a hedge fund investor, and Penta Capital, a buyout firm associated with Tosca.

Since the approach was made, Morgan and the firms participating in the bid have faced an uphill battle. Their initial offer was criticised by Fidelity International, Redrow’s third-biggest shareholder with a 10 per cent stake. Fidelity believed that the price was too low and did not account for the potential of an increase in value should the UK property market pick up. The fund management group demanded a higher offer of at least 220 pence a share. Other investors such as Legal & General were also believed to have wanted more money.

**Negotiations “Have Now Been Terminated”**
!m[Steve Morgan’s Plans to Buy Back UK House Builder Collapse Minutes before Deadline](/uploads/story/607/thumbs/pic1_inline.png)In a Stock Exchange announcement released on Thursday (18 October 2012), Redrow said: “Each of Bridgemere, Toscafund and Penta confirms that discussions with Redrow and between themselves in relation to the possible offer have now been terminated and that none of them has a current intention to make an offer for Redrow.”

According to reports, the negotiations fell apart after a decision by the Takeover Panel to refuse to grant “joint offeror” status to Bridgemere and Toscafund. The panel did not grant the status, raising concerns that together the shareholders own 57 per cent of the company. With such a large combined stake any rival bid offer would be unlikely and smaller shareholders had little power to vote the deal down.
**Bidders Drop the Offer Minutes before Deadline**
The Takeover Panel’s decision, which has been made after two deadline extensions were granted to allow negotiations to continue, meant that Morgan had to find an alternative source of funding to finance his bid for Redrow. There are thought to have been intensive discussions to try to find another funding source, and a way to structure a deal that would be acceptable to the panel and the Redrow board. This, however, was impossible by Thursday’s deadline of 5pm and led to Morgan’s decision to scrap his plans to buy back the homebuilder and bring the seven weeks of takeover talks to an end.
**Six Months before New Offer Can be Made**
Under the Takeover Panel rules, Morgan reserves the right to make or participate in a new offer for Redrow, but only after six months have passed. It is understood that if any formal offer had been made it would have been higher than the initial one but not close to Fidelity’s demands.