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April 24, 2012 6:04 pm
Redrow has placed a bet on the resilience of the property market with an £80m share placing that will create a war chest for expansion in London and elsewhere.
With the average selling price on its properties up 20 per cent to £223,000 in the 16 weeks to April 20 compared with the same period a year ago, the housebuilder said it was keen to acquire more land as and when opportunities arose. As with most housebuilders, Redrow has been shifting from apartments to houses and is developing land bought cheaply during the recession.
The share placing will be fully underwritten by Steve Morgan, the chairman and founder, who rejoined Redrow three years ago after it posted its worst-ever results. Mr Morgan owns 30 per cent but his holding could rise to between 33 per cent and 42 per cent after the new shares are issued.
As a result, Mr Morgan, who set up Redrow in 1974, must receive the backing of shareholders to waive his obligation to make a cash offer for the company, which is required if a shareholder’s stake surpasses 30 per cent.
The deal raised speculation that Mr Morgan was seeking to increase control or eventually take the company private. “We believe this may be seen as a move to enhance his influence when his shares are at a four-month low and 14 per cent below their recent high,“ said Alastair Stewart, analyst at Canaccord Genuity.
But Mr Morgan, who watched his Wolverhampton Wanderers football club relegated from the Premiership at the weekend, said: “This is a statement of strength; we want to accelerate the growth of the business. The fact that I’m underwriting the placing doesn’t make much difference. I can’t put any more effort than I do and I can’t exercise more control.”
Under the terms of the share issue, £19.4m will come from Mr Morgan’s company Bridgemere. It is also calling on investors for a further £60.2m from an open offer of three new shares for every 20 held. The stock will be issued at 130p a share, an 11 per cent premium to the closing price of 117p on Monday.
The board has backed the deal and will seek shareholder approval at a general meeting on May 10. Large stakeholders Tosca Fund and Fidelity are said to be supportive, sources said.
The announcement came as Redrow reported an uplift in sales in the 16 weeks to April 20. The group said sales at its first significant development in the capital, on Commercial Road, east London, had proved strong, with more than 50 out of 130 units sold, many to Asian investors.
The volume of net private reservations overall for the period was 843 homes, up 9 per cent.
The shares rose 7.7 per cent to close at 126p despite some bearish analysts’ sentiment. Robin Hardy, analyst at Peel Hunt, said: “We are concerned about anyone making heavy investment into London this late in the cycle: Berkeley, Barratt and Bellway have the heaviest presence in London but have far longer experience and longer existing landbanks. The London residential market is beginning to look somewhat overpopulated.”
Mr Stewart added: “We have been concerned about overheating in the land market in London and the south-east so we see this as a somewhat bold move, notwithstanding Morgan’s well respected track record.”
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