CMA Approves £2.5bn Barratt and Redrow Merger 🏠

Hey there! 👋

The Competition and Markets Authority (CMA) has recently approved the merger between house-building firms Barratt Developments and Redrow following a Phase 1 inquiry. The £2.5 billion deal has consolidated both Barratt Developments and Redrow into a new entity, now known as Barratt Redrow.

Let’s dive into what happened and how law firms could be involved.

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House Building Firms Combine Forces 🤝

The merger brings together two large players in the UK housing market:

• Barratt Developments: the UK’s largest housebuilder by revenue and total homes constructed, who built 17,206 homes in the previous financial year.

• Redrow: Founded in 1974 by Steve Morgan as a civil engineering firm in North Wales, Redrow then grew into one of the UK's largest housebuilders, listed on the FTSE 250. It completed 5,436 homes in the same period as Barratt's 17,206.

The merged entity is expected to construct 23,000 homes annually and generate over £7 billion in revenue. This consolidation creates a powerhouse in the UK housing market, combining Barratt's scale with Redrow's reputation for quality homes.

Why Has the Merger Been Approved?

Initially, concerns were raised that the merger could cause a "substantial lessening of competition" in the areas surrounding Whitchurch and Shropshire. The CMA found that both housebuilders held a significant combined share of land in the local market. This raised concerns about higher prices and lower-quality homes due to reduced competition. In that particular area, the CMA viewed the merged firms as a dominant force in the market.

Fortunately, the CMA accepted the undertakings offered by the merging parties. In legal terms, an undertaking is a formal promise given by a party, typically in writing, to do or refrain from doing something. Undertakings are commonly used in competition law by companies to avoid more severe regulatory consequences. One of the key measures includes the appointment of Savills, an independent third-party agent, to oversee the sale of unsold houses in areas where their development sites overlap. This sale will create opportunities for other competitors to purchase these properties, preventing a housing monopoly in the residential property market in the Whitchurch area.

How Would a Law Firm Be Involved Post-merger? ⚖️

Corporate Restructuring: Barratt Redrow is currently working on reorganising the merged company to save money and operate more efficiently. They plan to cut costs and improve how they work together, which could result in annual savings of around £90 million.

Employment Law: It is possible that 1 in 10 jobs could be cut as a result of the merger. This raises important employment law considerations, such as the rights of employees facing redundancy and the need to avoid unfair dismissal claims. Employees are entitled to notice periods, final pay, and the fulfilment of contractual obligations, which may include severance packages, pensions, and accrued benefits.

Regulatory and Compliance: The company must follow through on the promises it made to the CMA, ensuring full compliance with the undertakings agreed upon as part of the merger approval. As a FTSE 100 company, Barratt Redrow will have several obligations it must continue to abide by, which lawyers may support with.

Competition Law: Other residential property developers considering mergers will be more mindful of the CMA’s continued scrutiny at both national and local levels. Housebuilders seeking to merge will need legal advice on the likelihood of a CMA inquiry and how to prepare for and mitigate potential concerns.

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I hope you enjoyed this article. See you next week! 👋

Written by Chelsea Badmos