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Battle for Bovis: What the analysts say

Bovis Homes has become the subject of a £2.5bn takeover battle with Galliford Try and Redrow circling the ailing firm. 

The Kent-based housebuilder, which is currently without a permanent chief executive, has rejected initial approaches from both firms, but remains in talks with Galliford Try.

Here we round-up what analysts are saying about a possible deal:

Canaccord Genuity director Aynsley Lammin:

“We can see the logic of the proposed merger for Redrow and Galliford, if achieved at the right price.

“It could instantly increase the scale and reach of each company and deliver some synergies. 

“An all-share deal would avoid gearing up the balance sheet and would also allow the shareholders of Bovis to enjoy the future returns on the combined group, and thereby help to avoid an overstretched premium being paid. 

“In essence it provides each company with a landbank from which they should to be able to extract a better return. 

“Bovis is clearly going to argue that it will not sell out below what it believes the value in the land bank is. 

“The key issue for Bovis shareholders is how an independent Bovis could improve margins and returns compared to what could be delivered by one of the interested parties as part of a larger combination. Bovis has re-iterated that it remains committed to improving its returns.” 

Liberum analyst for building materials and housebuilders Charlie Campbell:

“With Bovis trading close to net asset value, we believe that the bids are quite opportunistic.

“Both managements would be confident of improving returns at Bovis through improving the production process and reducing overheads.

“Redrow and Galliford Try have their own plans in place to generate shareholder value by growing their businesses, so neither group needs to progress with the transaction, but at current levels their proposals for Bovis look attractive.

“Bovis may also be interesting to other entities. Construction groups may be interested in building up a UK housebuilding capability, and for example we note that Skanska did try to set up a UK housebuilder from scratch and subsequently left the market – this could be a way to generate scale quickly.

“The larger housing associations are also edging more into private development and may find this a way to get scale quickly. There are also a few mid-sized housebuilders with well-capitalised backers.

Shore Capital analyst Robin Hardy:

“For Redrow, buying Bovis would be a burden. You need root and branch change at Bovis. 

“For Galliford Try it makes more sense as it fits in with one of its strategic objectives. It has ambitions to be a housebuilder and it’s a good opportunity to double the size of the business.

“For anybody that doesn’t already do housebuilding it makes much more sense. You are adding a new business, it’s like expanding abroad.”

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