Shares in homebuilder Crest Nicholson fell by 11% last Thursday after the company unveiled yet another profit warning, says Melissa Lawford in The Telegraph. But they clawed back most of the lost ground a day later after Crest’s new CEO Martyn Clark said it had turned down an unsolicited £650 million takeover bid from rival Bellway that “significantly undervalued” the business.
However, experts warned that Crest’s recent poor performance means that Clark “will face a difficult turnaround job. Shareholders may have wished management had asked their opinion” before rejecting the bid. Even though Bellway’s all-share offer works out at a 30% premium over Crest’s share price in May, Clark clearly thinks that this is too little, says Joshua Oliver in the Financial Times.
His main concern is that it would value the company at a discount to what he considers to be its “strong land portfolio”. Still, Clark may be too optimistic about Crest’s prospects as a standalone company. It has “struggled, even in the context of widespread gloom in the homebuilding sector”, thanks to “building defects at older sites and buyers put off by high mortgage costs”.
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Crest’s past “prowess at making a horlicks of a market ostensibly loaded in its favour” is dragging down its share price, says Alistair Osborne in The Times. There is also the promise of “more nasties to come” over past problems with cladding and the risk of fire.
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Some brokers argue that a merger with Bellway would produce “at least £25 million of synergies” and facilitate the purchase of larger sites. With the top 25 investors in Crest also owning 36% of Bellway, Clark “has a job on proving that a home-alone strategy works best for Crest”.
Already, it seems that some of Crest Nicholson’s biggest shareholders are “pushing” the board to agree some sort of tie-up with Bellway, says Sam Chambers in The Sunday Times. For example, asset management group Schroders, which owns 3% stakes in both companies, is sceptical about the odds of Crest managing to turn itself around as a separate company. It thinks that “the time has come” for Crest “to become part of a larger group”.
Similarly, asset manager abrdn, which also has both companies in its UK Value Equity Fund portfolio, thinks that neither Crest’s board or its shareholders can deny that “there is logic to a combination with Bellway”, though it believes that Bellway’s bid “is not at an appropriate price”.
While Crest’s shareholders may think that Bellway certainly has “scope to offer more” for Crest, it may only require a “nominal hike” to get the deal over the line, says Yawen Chen on Breakingviews.
What’s more, consolidation not only “makes sense for Crest in particular but also for UK builders in general”. Previously “chunky” returns on capital employed “have slumped to single-digit levels”, thanks to “cost inflation and a housing market wrestling with higher interest rates that make it harder for buyers to take the plunge”.
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