News of a proposed combination between the housebuilding and regeneration units of diversified building business Galliford Try (GFRD) and Bovis Homes (BVS) sees shares in the former advance 12.9% to 694.5p and the latter drop 4% to £10.17.

This could suggest the market feels Galliford is getting the better end of the bargain, although it also reflects the likely dilution to be endured by existing shareholders as Bovis plans to raise money to fund the cash element of the deal.

If the potential transaction proceeds, it is expected to value Galliford Try's housing businesses at a little more than £1bn.

THE DETAILS

Galliford Try shareholders would receive 0.57406 Bovis Homes shares per Galliford Try share, which would equate to 63,739,385 Bovis Homes shares valued at £675m. Bovis would also pay Galliford Try £300m in cash and take on the latter's 10-year private debt placement of £100m.

On completion of the transaction, Galliford Try shareholders would own in aggregate approximately 29.3% of the enlarged Bovis Homes entity.

Bovis says it will fund the £300m cash payment through an equity placing of 9.99% of total shares outstanding, a debt placing and the utilisation of its existing balance sheet resources.

Canaccord Genuity analyst Aynsley Lammin says: ‘Partially funding the deal with shares and using an equity placing (up to 9.99% of Bovis existing share capital) as well as using a bonus issue for £60m of the share returns, would ensure that Bovis's balance sheet remains strong with a relatively conservative level of financial risk.

‘It would leave Galliford Try with a stronger, well capitalised balance sheet and a focused construction business from which it could deliver value. There remain several hurdles to overcome before the deal completes, but it looks very likely to do so in our view.’

TURNING THE TABLES

AJ Bell investment director Russ Mould says: ‘It is probably telling that the terms of the freshly proposed transaction include a cash element. Today’s news is very much a case of a predator becoming prey after Galliford made its own play for Bovis when it was in the middle of a testing period back in 2017.

‘The turning of the tables is testament to the repair job Bovis boss Greg Fitzgerald has done in the interim.’

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Issue Date: 10 Sep 2019