Morgan to Make Offer for Redrow


LONDON -- Redrow's (ISE: RDW.L) CEO, Steve Morgan, surprised very few people this morning with an announcement that he is looking to taking the homebuilder back into private ownership.

Morgan founded the firm back in 1974 and saw it join the stock market in 1994. He then left in 2000 but retained a significant stake in the business. The shares hit an all-time high of more than 7 pounds before the credit crunch but subsequently slumped. Morgan then returned to the business in 2009, increasing his holding to just over 40% when Redrow raised fresh funds earlier this year.

The offer is 152 pence per share, all in cash, although a formal bid is yet to be made. Morgan is likely to launch his bid in partnership with Toscafund Asset Management, which holds a further 13.8%. Their combined stake is 54.2%.

Redrow is advising shareholders not to take any action at the moment, though considering the offer is not yet official, that almost seems to go without saying. The company releases its full-year results on Sept. 19, and shareholders will obviously want to see these before making any decision.

Redrow delivered a pretty solid set of half-year results back in February and has since advised that the company has been trading well. However, it currently has some of the lowest profit margins in the homebuilding sector and still looks to be in the early stages of a full recovery.

Redrow's share price has been rising recently in anticipation that Morgan might make such a move. So, this morning the shares rose a mere 3% to 155 pence, just ahead the proposed offer price, although they were as low as 110 pence just a few months ago.

In a statement announcing the potential bid, Morgan said the offer represented "a strong value proposition when considered in the context of Redrow's share price performance in recent years, which has seen Redrow shares trade at a significant discount to reported Net Asset Value over an extended period."

The offer of 152 pence per share would value Redrow at 562 million pounds -- almost 30% below its last reported net asset value of 777 million pounds. We'll have to see how this one plays out, but I suspect shareholders will see this as an attempt to buy the business on the cheap. A number of small AIM companies have seen similar moves in recent months but have been rebuffed. That could well be repeated here.

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