As recently as last Thursday, Bellwayâs proposed acquisition of smaller housebuilder Crest Nicholson for an estimated £720m in shares appeared to be progressing smoothly. Both companies had issued a joint statement declaring "good progress" had been made, with "a number of elements satisfactorily completed" during reciprocal due diligence.
However, in a surprising turn of events, Bellway has unexpectedly withdrawn its bid, leaving Crest Nicholson in a precarious position. The company provided no public explanation for the decision, simply stating that it would not be making a firm offer. This abrupt reversal is particularly noteworthy given Bellway's sustained interest, having made three proposals since April and securing a "minded to recommend" statement from Crest Nicholson just a month ago.
Unsurprisingly, Crest Nicholson's shares plummeted by 21% following the news. The sudden termination of the deal has left the company facing significant humiliation, with the outside world inevitably assuming that Bellway discovered something unfavourable during due diligence. This perception is particularly damaging given Crest Nicholson's recent track record, which includes four profit warnings in the past year and substantial provisions.
Despite the setback, Crest Nicholson maintains a "confident" outlook, highlighting its "highly attractive land portfolio". While this is a more sensible response than expressing anger towards Bellway, the reality is that CEO Martyn Clark, who only joined the company in June, now faces a considerably more challenging task in restoring investor confidence. His first two months in the role have been consumed by a futile exercise.
The decision by Bellway has also sent a negative message to any potential future bidders. As Anthony Codling, an analyst at RBC, observes, Bellway had "plenty of time to look under the bonnet and kick the tyres", yet chose not to proceed. This could lead any subsequent interested party to offer a lower price. It seems likely that Clark will need to put deal-making on hold for the foreseeable future and focus on delivering consistent and provision-free financial results.
However, Codling also points out that Bellway may not have needed to acquire Crest Nicholson in the first place. While housebuilder mergers are operationally straightforward, and Barratt is currently pursuing a similar acquisition of Redrow, there is no obligation to engage in such transactions. Even before the Labour government announced its housebuilding targets, Bellway CEO Jason Honeyman had expressed optimism about improving demand and market conditions. A successful housebuilder, like Bellway, didn't necessarily require a struggling one.
The net result of this failed deal is a perception of decisive action on Bellway's part. The company's shares rose by 4%, showcasing its disciplined approach to acquisitions. Conversely, Crest Nicholson is left facing a renewed challenge. While this outcome may seem unfair, as the old adage goes, a deal isn't a deal until it's signed.
