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Vinci got Taylor Woodrow in ‘priced to go’ negotiation

Taylor Wimpey’s £74 million sale of its contracting arm Taylor Woodrow was a cut-price deal to get much needed cash on its books, according to construction analysts.

Taylor Wimpey would not comment on the terms of the deal, but the firm lost £1.5 billion in the six months to 30 June and analysts at Numis Securities said Taylor Woodrow had been “priced to go”.

French-owned construction giant Vinci PLC snapped up the division last week, making Vinci a top 10 player in the UK with a projected £1.4 billion turnover.

Analysts said Vinci got a cheap price for Taylor Woodrow, which made an operating profit of £17.8 million and had assets of £281.4 million to the year ended 31 December.

Dresdner Kleinwort and RBS said Taylor Woodrow was given away for virtually nothing in cash terms, suggesting around £75 million was sitting on the company balance sheet - a figure confirmed by Taylor Woodrow sources.

But the sources added that “the majority of the money had already been allocated to pay suppliers”.

RBS said the sale was “poor news for Taylor Wimpey” and described the net impact of the deal as “£74 million of money borrowed from construction clients replaced with £74 million from Vinci”.

Howard Seymour, analyst with Numis Securities, said: “It looks like it has been priced to go.

“Construction firms are notoriously difficult to value. But this definitely looks cheap to us and appears to have been sold to get cash in.”

Taylor Wimpey said the proceeds will be used for “general group purposes” and added that the disposal is in line with its strategy of focusing on core house building activities.

But the house builder declined to comment on whether the deal had been cut price, though it admitted it is in talks with its banks to adjust its borrowing agreements.

Vinci said one of the main motivations for the purchase was to give it a presence in the £45 billion Building Schools for the Future sector. Taylor Woodrow currently holds the contract for Sheffield schools.

The takeover also increases Vinci’s presence in the rail, air, energy and facilities management sectors.

Bosses at Vinci said Taylor Woodrow would become an operating division of the group but would continue to be run as it was prior to takeover.

The company was unable to confirm whether there will be any job losses but the famous old Taylor Woodrow “teamwork” logo has been dropped with a new logo created, incorporating Vinci’s colours.

Analysis: Buyer’s market gave Vinci a bargain

By Stephen Bayfield

One way to improve liquidity is to sell off parts of a company that are not necessarily core to its business.

It is a bad time to be looking to banks to raise cash. They are not a good source to raise an extra £50 million to £100 million of working capital.

Taylor Wimpey said it had been looking to sell its construction arm for some time.

Bosses have been watching their cash and cutting costs, as you would expect from a big player in the house building sector at the moment.

There is probably an element of commercial pressure driving this sale. Typically buyers look for a bargain.

If it was selling last year it could have expected a better price. But because of the credit crunch, all markets have come down and all valuations have dropped.

But without being a fly on the wall at the sale discussions, we will never truly know what pressure there was to sell and what exactly has been sold.

Stephen Bayfield is partner in corporate finance at accountants and business advisors PKF