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Barratt and Redrow asked to address CMA’s merger concerns to avoid in-depth investigation
The Competition and Markets Authority (CMA) has asked Barratt and Redrow to submit proposals to address its concerns following the first phase of its inquiry into their potential merger.
If the house builders can ease the watchdog’s concerns about the £2.5bn deal potentially creating a lack of competition in a local area, they will be able to avoid the merger being subject to an in-depth investigation by the CMA.
Shareholders approved Barratt’s proposed multibillion-pound merger with rival Redrow in May.
The combined group will have capacity to build “in excess” of 22,000 homes a year and is expected to bring in annual revenues of around £7.5bn, they said in a filing published earlier this year.
However, after the deal emerged, the CMA announced that it was looking into the potential acquisition over potential harm to the market, and launched a phase-one merger inquiry.
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Following the inquiry, the CMA has concerns that the merger could lead to a lack of competition in one area around a Barratt development in Whitchurch, including nearby towns such as Nantwich, Ellesmere and Market Drayton.
The watchdog found that both house builders hold a high combined share of land in the catchment area and if the deal goes ahead, it could lead to higher house prices and lower-quality homes.
However, the CMA also found that once the deal is complete, the merged business will continue to face competition from rivals nationally and in all other overlapping local areas.
The inquiry did not raise UK-wide competition concerns, but the CMA said it was aware that “there may be further consolidation amongst house builders” and was “committed to carefully assessing mergers in the housebuilding market further, both on a national and local level”.
Barratt and Redrow now have the opportunity to submit proposals which address the CMA’s concerns and to avoid the deal moving to an in-depth phase-two review.
Joel Bamford, executive director for mergers at the CMA, said: “Prospective homebuyers must not be disadvantaged as a result of deals like this one – with the potential loss of competition leading to even higher house prices or lower-quality homes.
“Our initial investigation found concerns specifically in one area in and around Whitchurch. The companies now have the opportunity to agree workable solutions which address our concerns rather than move to a more in-depth investigation.”
David Thomas, group chief executive of Barratt, said: “We are pleased that the CMA has found there would be no harm to competition in all but one of the areas in which Barratt and Redrow overlap.
“We remain confident that the combination of Barratt and Redrow will be approved and that it is in the best interests of our customers and wider stakeholders.
“Together we plan to build on our shared strengths and create an exceptional home builder, in terms of quality, service and sustainability, helping to deliver the homes the country needs.”
Matthew Pratt, group chief executive of Redrow, said, “Barratt and Redrow are two leading house builders, with strong reputations for quality, service and sustainability that have been decades in the making.
“Once the CMA process has completed, we are looking forward to our future as one team, accelerating the delivery of high-quality homes that the country so urgently needs.”
In a trading update in July, Barratt announced a drop in affordable completions of 28.6%, as overall completions fell due to “muted demand”.
The house builder also reported costs in relation to its merger with Redrow of around £23m.
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