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Firms in £1.3bn merger talks

Bellway and Redrow were today the subject of speculation about a £1.3 billion merger to create one of the UK's biggest house builders.

According to national newspaper reports, Bellway has approached Redrow with a view to carrying out an all-share merger between the country's fifth and seventh-biggest house builders in terms of stock market value.

It is thought to be the second time that Bellway, the larger of the two firms with a value of £824 million, has approached Redrow about a tie-up.

The reported move comes at a testing time for the sector as firms feel the pressure from a slowing economy and tighter mortgage market.

Persimmon, which is the sector's largest firm with a market value of £1.7 billion, recently said revenues were down by a quarter in the year to date.

If the combination goes ahead it could reopen consolidation in the sector after Taylor Woodrow and Wimpey created the UK's second largest firm last year. While Bellway is the larger firm by market value, Redrow is thought to boast a bigger holding of future plots - estimated at around 25,700.

Bellway, which was founded in 1946 and employs more than 2,000 people, said in March that it was facing "difficult times" in the housing market as it unveiled a 3.9 per cent drop in interim pre-tax profits to £96.9 million.

However, the firm said its strategy of forward selling helped soften the blow of a tougher market, with £670 million worth of forward orders so far secured – 88 per cent of its revised annual target for the whole financial year.

The Newcastle-based firm said the market was particularly challenging in the Midlands, Yorkshire and the North West. It has sought to tempt buyers with incentives, such as carpets and curtains in the sale price.

Flintshire-based Redrow's pre-tax profits from continuing operations for the six months to December 31 dived to £35.8 million from £54.7 million.

Total house sales for the period were 2,111, down 4.7 per cent year-on-year.

Commenting on the results, analysts at Landsbanki described Redrow as a "weak player in a tough market", and suggested the firm was open to a takeover.