Taylor Woodrow Share Discussion Threads

[judge jury] 04/4/2007 10:38

575p would only be about 1.5x net assets (I am assuming net assets would have increased to about 385p by the mid year), which is a significantly lower multiple than BDEV's acquisition of WLB and I am not sure it would be enough to get a recommendation from the TWOD board, particularly since a large chunk of the consideration would probably be in PSN shares (cant see them doing a rights issue and offering cash). Given that WMPY would probably look to counterbid, I still think >700p would be required.

[markpun] 04/4/2007 10:14

Merrill Lynch reckons Persimmon can afford to pay 525-575p a share for Taylor Woodrow without the deal being earnings dilutive. Broker says buy the stock.

[judge jury] 04/4/2007 08:16

Dont forget that if PSN does bid for TWOD, then WMPY would be forced to think about bidding for TWOD themselves ... WMPY is less highly geared than PSN at the moment and would probably be more desperate to win.

[markpun] 04/4/2007 07:39

I found this article of interest, others might...

Share tips: Investment extra on housebuilders
Brian O'Connor, Daily Mail
2 April 2007

The planned merger of Taylor Woodrow and Wimpey sets the seal on the restructuring of the UK housebuilding sector. A few deals remain to be done, but these two stood out among those which had yet to merge.

I am sad to see Wimpey go, though shareholders will hardly complain. It was one of the first shares I tipped in this column. The price was then 120p and it was selling at four times earnings, one of the lowest ratings on the entire UK market.

Six months later the price was 115p - showing what people thought of the tip. Now it is 635½p. Taylor Woodrow, first tipped here at 149p, is now 489½p.

Mergers were always on the cards in a highly fragmented sector. Six years ago, no housebuilder was worth more than £1bn. If Taylor and Wimpey make it, they will become a £5bn group.

For years most shares traded at five to six-times earnings and were disdained by fund managers, who feared profits would collapse when house prices fell.

In reality, with far too few houses being built to keep up with demand, builders were sitting on increasingly scarce and valuable land.

Eventually the penny dropped; the shares have now been rerated up to ten or 12-times earnings. Take-out prices, which are largely determined by assets, have been pitched at 13 to 14 times earnings.

The sector has provided some of the most profitable tips for Investment Extra readers. Bellway, first tipped at 435p, is now 1590p. Crest Nicholson, tipped at 333p, looks like being taken out by Sir Tom Hunter's Castle Bidco at almost 630p. Galliford (tipped at 40p) is now 171p, Barratt (495p) is 1105p.

Others, such as Westbury and Country & Metropolitan, doubled or trebled before being taken over.

What value remains today? Builders are still rated at below the market average, although their profits and dividends have been climbing, their assets are in more demand than ever, and predators are still prowling.

Simon Brown, at stockbroker Evolution, said: 'There is still more consolidation to come. I would expect five or six large groups to emerge.' He thinks four of these may rank in the top 100; Persimmon, Barratt, Taylor/Wimpey, and a fourth player formed by future mergers.

There are predictions of a housing crash, but the 'End is Nigh' merchants have been at it for years. A correction will surely come some day, but despite a string of government reports and well-meaning efforts, there is no sign of supply catching up with demand.

If interest rates rise to 7 or 8%, housing will slump, but so will nearly everything else. It is hard to argue that builders are hugely undervalued as they used to be. Slightly undervalued is more like it. Those who have yet to do a deal, led by Redrow (651½p) Bovis Homes (1152p) and Bellway, all previously tipped, are worth holding.

Some of the bid hopes are now in the prices, but a take out price for Redrow could be £7, and for Bovis, with its excellent landbank, £13 to £14.

[dennieg] 04/4/2007 07:19

Merrill Lynch has upgraded to buy from neutral with a price target of 550p. Also mention of possible counter bid from Persimmon

[markpun] 04/4/2007 07:04

Morning Folks,

Onwards and upwards I hope..


Merrill Lynch upgrades to buy from neutral with a 550p a share price target. Broker reckons there is a good possibilty of a counter-bid from Persimmon to break up the sweetheart deal with Wimpey. It adds: 'In the event of a Persimmon counter bid, we believe that TW (either on its own or as part of the enlarged Taylor-Wimpey combination) could return between 50-125p per share, given the existing low level of ndebtedness at the group.'

[maiseymouse] 04/4/2007 06:59

seems to be a case of when and not if persimmon bids

[markpun] 03/4/2007 08:26

Morning Judge,

700p sounds good to me, I need much as I can get for my tiny holding. Your thoughts always interesting to read.

Cheers.

[judge jury] 03/4/2007 08:01

Interesting. Without doing any sums I had guessed a 50:50 cash share split. I dont see why a rights issue would be necessary. Surely, PSN could just issue shares as part of the consideration.

To me this article suggests a bid is a possibility but not a certainty, which is also what the share prices are saying. I still think they would have to pay about 700p a share (c.1.8x net assets), which would be quite a dilemma for them. But then it's probably the last chance for them to get their hands on a lot of land in one go.

[judge jury] 31/3/2007 12:22

I have realised that I have made a mistake with my ex-div/cum-div share price calculations. It looks like WMPY went ex-div on 2 March, whereas TWOD goes ex-div on 25 May. This means that the implied merger price of WMPY is 13.1p lower than I thought.

I think this means that TWOD's closing price of 489.5p yesterday would imply a WMPY price of 656.5p which is 21p (or 3%) higher than WMPY's closing price of 635.5p. So only minor bid speculation at the moment.

[judge jury] 31/3/2007 11:53

Ignoring a cash return was a big mistake in my view. Poor advice from UBS and JPMorgan Cazenove as I've said before. If they do throw in a cash element, it should be upfront (e.g. special dividend) rather than in the form of a possible buy back in the future which would be uncertain and weak

Hints of cash return to sweeten merger deal.
By TOM GRIGGS
31 March 2007
Financial Times

Peter Redfern, chief executive of George Wimpey, hinted yesterday that cash might be made available to shareholders to sweeten the merger announced this week between his company and Taylor Woodrow.

Mr Redfern, who would be chief executive of the enlarged housebuilder, said he did not think the merged company would need all the cash generated by both groups.

"This deal is value creating in its own right," he said. "We thought cash was not an urgent priority for shareholders."

He added: "I don't think we will need all of the cash available but a cash return was not urgent on the back of the deal. However, there is time to review the situation and we can then decide what to do."

Chris Millington, analyst at Bridgewell Securities, criticised the deal this week for not offering any cash to shareholders and said this had left the door open for Persimmon to bid for Taylor Woodrow.

Wimpey shares ended the week only 1/2p higher at 635 1/2p while Taylor Woodrow shares rose 69p, or 16.4 per cent, to 489 1/2p on speculation that Persimmon might bid.

Mr Redfern said he did not want to comment on what other companies might or might not do. Persimmon would not comment either.

Mr Millington said yesterday that Wimpey and Taylor Woodrow ""have a lot of flexibility to do something with cash. Considering that the merged company is proposing to reduce volumes by about 5 per cent, I do not think something in the realm of Pounds 500m would be untoward."

Wimpey generated net cash of Pounds 153.7m last year. Taylor Woodrow generated Pounds 57m. Mr Redfern said at the announcement on Monday that Taylor Wimpey would use the cash to develop the US land bank in the states where the two groups both have operations - California, Arizona, Texas and Florida.

He said yesterday that the group still saw the current weakness in the US housing market as an excellent opportunity to expand there. "Some US companies are coming into difficulties and selling land at a discount This is a stunning opportunity for us."

Mr Redfern added: "We have only limited direct exposure - about 5 per cent - to the subprime mortgage market.

"We only work at the upscale end of the market with prices around Dollars 375,000. We will only expand in areas that have significant population growth."

[judge jury] 30/3/2007 15:46

Interesting to see TWOD up again and WMPY down. At 491p, the implied merger price for WMPY should be 672p, but it's 5% below this at 635p. Looks like the market is betting on a PSN bid at the moment.

[judge jury] 30/3/2007 12:47

This, however, is very important. Big thumbs up to Pete Redfern

Standard Life Supports Taylor Woodrow, Wimpey Merger
29 March 2007
Dow Jones International News

LONDON (Dow Jones)-- Standard Life Investments (SLI.LN), which holds stakes in U.K. house builders Taylor Woodrow PLC (TWOD.LN) and George Wimpey PLC (WMPY.LN), said Thursday it thought the agreed takeover of Wimpey by Taylor Woodrow would bring "considerable cost savings."

A spokesman for Standard Life said "the market likes Wimpey's new management team and the influence it could have on the merged company." He also said a merger would provide "scale benefits" in the U.S. market.

Taylor Woodrow revealed its takeover of George Wimpey Monday. The agreed deal is being structured as a nil-premium merger and is subject to shareholder approval.

Standard Life holds a 1.76% stake in Taylor Woodrow and 1.73% in George Wimpey.

-By Molly Dover, Dow Jones Newswires; [phone]; [e-mail] [ 29-03-07 1525GMT ]

[judge jury] 30/3/2007 12:43

Worth a read but doesnt really add much to what we already know

Taylor Woodrow and Wimpey build partnership
Catherine Boyle
31 March 2007
The Business

WITH each week bringing talk of an imminent private equity deal involving just about any company you care to name, it has fallen to two British housebuilders, appropriately, to come up with a real merger built on bricks and mortar.

The union of Taylor Woodrow and George Wimpey would create Britain's largest housebuilder, with a combined £5bn ($9.8bn, E7.4bn) market capitalisation and a market share of about 11.5%. But as Taylor Wimpey cracks open the champagne, will a competitor decide to crash the party?

Shareholders in Wimpey are being offered just 49% of the enlarged group despite having the higher market cap of the two, and are not being offered a premium. As it stands, Wimpey is valued at 1.5 times book value. That compares with the 1.8 times Barratt paid for Wilson Bowden and 2.5 times HBOS offered for McCarthy & Stone, the retirement homes builder.

The merging parties argue that the deal is about future growth from a stronger platform. Their recent poor track records provide some justification for this; Taylor Woodrow and Wimpeys' earnings before interest, tax, depreciation and amortisation (Ebitda) margins, at 13.1% and 11.5% respectively, are lower than the 17.4% peer median.

Prospective gatecrashers include Persimmon, which remains hungry for acquisitions following last year's £643m purchase of Westbury. Its chief executive, Mike Farley, makes no secret of wanting to increase Persimmon's landbank by 30,000 plots over the next three years and has said he will consider acquisitions as and when opportunities arise. Taylor Woodrow could make juicy prey.

Despite this, Taylor Woodrow, with assets in America and Spain, would not sit comfortably with Persimmon's UK focus. Persimmon is more likely to look to the mid-caps, such as £1bn Redrow, £1.8bn Bellway or £1.4bn Bovis Homes.

The day the Taylor Wimpey deal was announced to the market Bellway's share price leaped 112p to £16.22, while Bovis rose 52p to £11.94 and Redrow jumped 35p to £6.42.

Bovis in particular has been rumoured for weeks as a target for Persimmon.

If Persimmon does decide to launch a spoiler bid for Taylor Woodrow, George Wimpey might console itself by bidding for one of the mid caps – Redrow and Bellway are the likely targets – or even Woodrow's North American business.

Taylor Woodrow and George Wimpey had been flirting for months before talks finally got serious in February. All going to plan, the enlarged group will take its place in the FTSE 100 index, anchored by annual revenues of more than £6.7bn. Each year, it will build 22,000 homes in Britain and 9,000 homes in North America.

There is clear scope for cost-savings. Persimmon has already squeezed £32m in synergy savings from Westbury; Taylor Wimpey expects to achieve savings of up to £85m a year. Redundancies could cull up to 10% of the workforce in the next couple of years, although the companies say the figure will be half this.

The title of "UK's biggest housebuilder", as with records for private equity buyouts, rarely stays in one place for long, however. Persimmon held the trophy for years, but lost it last month when Barratt paid £2.2bn for Wilson Bowden, seeing-off rival bids from Wimpey and Tom Hunter, the Scottish entrepreneur, working with HBOS. Hunter and HBOS have snapped up Crest Nicholson for £715m and McCarthy & Stone for £1.1bn, since September. The sector could go from 10 mid to large-cap companies to six within a couple of years.

While Persimmon used to be the only housebuilder in the FTSE 100, it will shortly be joined by Barratt and (if their merger goes according to plan) Taylor Wimpey.

That title will be challenged again and again as their rivals continue to converge in response to restrictive UK planning measures. Even with house prices hitting record highs, and a well-documented lack of affordable housing, builders are severely restricted as to where they can build. Taylor Woodrow in particular has been unable to fully capitalise on its landbank. Recent rises in the cost of borrowing have not helped.

If the Taylor Wimpey union runs its course, it could find rich pickings in the US side of the business. House sales in the US are at their lowest in almost seven years, making it a good time for Taylor Wimpey to increase its US land holdings with a view to cashing in when the market picks up steam again. Meanwhile, all eyes are on Persimmon.

Housebuilding has never been so exciting.

[judge jury] 29/3/2007 17:10

Bit of a bid premium back today?

Implied WMPY price is 665p. Actual WMPY price 640p. Hmmm ...

[ttg100] 29/3/2007 11:49

read it all JJ
excellent posts
many tks

[judge jury] 28/3/2007 18:14

Not really ... I think the market is realising that the prospect of a counter bid from PSN is small (although still possible) and the stated synergies from the merger are smallish. Moreover, whilst the merger story is credible (builds strength in the UK and US), the market is not going to give them much credit for this yet. After all, both merger parties have underperformed over the last two years and there is no certainty a bigger combination will do any better.

Personally, I think the combination will prove to be a good over the long term. The synergies will be better than stated and Taylor Wimpey will be well set in the US to make decent earnings enhancing acquisitions in the US to supplement growth in overall margins in the UK.

However, somewhat bizarrely I would be happy to see the share price fall in the short term in order to buy at a lower price.

[markpun] 28/3/2007 17:22

Hi Judge,

Do you feel a recovery tomorrow?

[judge jury] 28/3/2007 17:01

The 2.5 announcement said that "The Merger is expected to complete in the summer of 2007".

I would expect the Scheme Document and Circular to be mailed to shareholders by the end of April. The Court meeting and Taylor Woodrow shareholder meeting will probably take place towards the end of May. If those two meetings are approved it would effectively be a done deal, although there will probably be other conditions that would need to be satisfied which would take them into June.

So PSN have got about 2 months to get their act together. However, I think the share price will tell you well before this whether a counter bid is likely (i.e. whether they are serious and are digging through any books and talking to shareholders).

[markpun] 28/3/2007 16:56

Evening Folks,

Does anyone think a recovery tomorrow/and where do we see support?

Cheers

[8gamsby] 28/3/2007 16:41

How long roughly before it becomes a done deal.When would other interested parties have to make a move