Bellway’s plan to buy smaller housebuilder Crest Nicholson for £720m-ish in shares was proceeding smoothly as recently as last Thursday, or so we were told. “Good progress has been made on reciprocal due diligence with a number of elements satisfactorily completed by both parties,” purred the two boards in harmony.
Five days later, the bidder has picked up its trowel and scarpered without offering a public explanation. Bellway merely said it won’t be making a firm offer, a surprising U-turn given that it started its pursuit in April and was previously so determined that it made three proposals before landing the desired “minded to recommend” statement from its target a month ago. This was not an adventure undertaken on a whim.
Crest Nicholson’s shares plunged by 21% for reasons that are easy to understand: in the takeover game, there is nothing as humiliating as being dumped at the altar. The outside world will immediately assume the bidder has found something it doesn’t like during the due diligence process. That may or not be true in this case, but the suggestion is doubly damaging when you have a recent record of profit warnings – four in a year – and provisions like Crest Nicholson’s.
Attempting to whistle cheerfully, the jilted party said it “remains confident” in its standalone prospects and “highly attractive land portfolio”. Yes, that’s probably a more sensible stance than calling the Bellway board a bunch of time-wasters, which might have been an understandable reaction. But the hard fact is that Crest Nicholson’s new chief executive, Martyn Clark, now faces a tougher job in restoring investors’ confidence. The former chief commercial officer at Persimmon arrived only in June when Bellway was already on the prowl. His first two months have now been consumed by a fruitless exercise.
Worse, the message to any other bidder is negative. As Anthony Codling, an analyst at RBC, put it, Bellway had “plenty of time to look under the bonnet and kick the tyres and [has] chosen not to proceed”, so the next interested party, if there is one, may come in lower. In reality, one suspects, Clark will have to forget about deal-making for the foreseeable future and settle down to the long-term job of delivering consistent and provision-free numbers.
But Codling is probably also correct that Bellway didn’t need to buy Crest Nicholson in the first place. Housebuilders may be relatively easy to combine from an operational point of view, and Barratt is in the process of buying Redrow to become even bigger, but that doesn’t mean you have to play. Even before the Labour government issued housebuilding targets, Bellway boss Jason Honeyman was talking about an improvement in demand and market conditions. A trouble-free housebuilder didn’t need to own a troubled one.
The net result, then, of this failed deal is that the instigator gets credit for walking away and looking disciplined on the acquisition front – Bellway’s shares rose by 4%. And the other side is presented with a fresh headache. It hardly seems fair, but, unfortunately for Crest Nicholson, that’s life. A deal isn’t a deal until it’s signed.