Berkeley announced last Friday that it intended to sell its upmarket housing arms and concentrate on large urban regeneration schemes. It will also sell about 13,000 plots of land, half of its holding.
Pidgley said that he was aiming to emulate the success of McCarthy & Stone, which has acquired an almost unassailable position in the retirement homes market.
Berkeley will be the largest player in the urban regeneration sector, and the only one able to take on a number of major schemes at once.
The move also means that the firm is protected against a major downturn in the housing market. Pidgley denied that Berkeley had made the decision in anticipation of a drop in house prices, but added that the company would be in a good position to weather a "worst-case scenario".
Long-term urban regeneration schemes are less likely to be scrapped than relatively small-scale housing schemes.
Berkeley aims to return £1.4bn to shareholders over the next six years; Pidgley stands to make nearly £24m from his own shareholding. After the change of strategy was announced last week, Berkeley Group's price rose 33% to 1197p.
Do I want to compete with a Wimpey? No. A Persimmon? No
Pidgley said a management buyout had been considered but that the board had decided against such as step, as it did not want to pay the exorbitant fee that a venture capitalist would charge to back it.
He said: "To pay a venture capitalist the sort of money it would want could mean £500m or £600m. It is the proper thing to do to give the money back to shareholders."
Industry observers praised the move. One analyst described it as a "masterstroke" while another said it was "brilliant".
The reason for this acclaim is that the City believes that Pidgley has given himself a wider range of options for the company's future by taking this course (see "What the future holds").
Berkeley also announced its results for the year to 30 April. Pre-tax profit rose 4.1% to £230m with turnover at nearly £1.4bn, an increase from £1.3bn last year.
The group has wiped out its net debt, which stood at £143m. It now possess net cash balance of £145m. Pidgley said this would offer protection for the group if the urban regeneration market cooled.
What the future holds: Some of Pidgley’s options
- A housebuilding comeback: Pidgley might say he is not calling the top of the market, but if house prices do collapse he can argue in three to four years’ time that he had the nous to pull out at the right time.
Berkeley chairman Roger Lewis has said the group might reassess the situation in about 2007 - when the housing market might start to climb back up.
With his track record, investors would back Pidgley to re-enter the traditional housing market by funding the purchase of a major housebuilder.
The buyout option: A management buyout might be ruled out for now but by 2007 the group’s market capitalisation could well have fallen from about £1.4bn to about £800-900m as a result of the streamlining of the business. This would make a buyout a more attractive and affordable option.
- A possible sale: Does Pidgley want to sell up? The firm is now simpler to understand for potential buyers and would be attractive as a cash cow feeding on the government’s regeneration agenda.