Join the queue

Tony Pidgley, the legendary managing director of the Berkeley Group, is, like many housebuilders, expecting a bumper Christmas postbag: “If I believe the press, I would expect quite a few CVs to be coming through my door any time soon.”

The main reason for this sudden interest in Pidgley’s staffing requirements is that last Thursday, the board of Westbury recommended to its shareholders that they accept a £643m offer from Persimmon. This is a decision that will have left many of Westbury’s 1500 staff quaking in their boots: Persimmon has a history of making large numbers of employees redundant when it makes an acquisition.

The recommendation came quickly – the story was only leaked to Reuters on 11 November. This led to a 29p hike in the share price to nearly £5, and forced Persimmon to confirm that the approach had been made on the next working day. Westbury staff’s must now wait for the extraordinary general meeting, expected between Christmas and the new year, when shareholders will almost certainly approve the deal.

Pidgley described Persimmon as “the best at acquisitions”. In other words, the company is good at ferreting out cost savings and ruthless at making them. In Westbury, it is planning to save £40m over two years. Eight regional offices are to close, as well as the Cheltenham headquarters, and this will lead to the loss of “a few hundred” jobs, in the words of John White, Persimmon’s chief executive.

In the first quarter of 2001, Persimmon surprised the housing sector by acquiring Beazer, and that purchase indicates what is likely to happen to Westbury. At £612m, Beazer had a similar pricetag. It was deemed by many analysts to be inefficient, with an operating margin of less than 10%. This time around, Persimmon has a 23% margin, whereas Westbury has 14%.

A former Beazer employee warns that Persimmon is essentially looking to acquire Westbury’s landbank, rather than its staff or its brand. “If you look at the history of the last acquisition, you would see that they basically just closed down the old Beazer offices,” says the source. “It’s all about the acquisition of the landbank. Anyone who is in the acquired company has to be very concerned for their future until Persimmon makes some positive statement to the contrary. They have a track record of doing this – and so far the acquired company has never survived.”

What Persimmon did not sell on shortly after it bought Beazer was gobbled up by the group’s constituent companies; only Charles Church, its upmarket housing business, survived. Part of Westbury will now be swallowed by Charles Church, one of the success stories of the previous deal. In 2001 it built 400 luxury homes, but on the back of the Westbury acquisition, this should increase to 3000.

Based on previous deals, it could possibly be more than a few hundred jobs that go

Chris Millington, Bridgewell

Businesses that Persimmon sold in 2001 included Beazer’s timber-frame operation, Torwood, which supplied Beazer Partnerships, the social housing arm. This has led to speculation that Space4, Westbury’s off-site manufacturing arm, will also be put up for sale.

To a company with such high margin expectations as Persimmon, a break-even business such as Space4 is probably unpalatable. Many analysts are also convinced that the company is being conservative about its expected savings; it cut £33m of fat from Beazer, £13m more than it had said it would. Chris Millington, a housebuilding analyst at financial adviser Bridgewell, says: “Greater savings are eminently achievable. Based on previous deals it could certainly be a lot higher, and it could possibly be more than a few hundred jobs that go as a result.”

Millington agrees with the consensus, though, which is that this is a good deal for the housebuilding sector in general, as well as for Persimmon in particular. For a start, it looks almost certain to propel Persimmon into the FTSE 100 – the only non-materials producer in construction to achieve this – as well as increasing its sales to about £3bn from 16,700 homes in 2006. Paul Pedley, the former Redrow boss and member of the Home Builders Federation’s council, enthuses: “This is brilliant news for the industry. I have always thought that once you get one of our brethren in the FTSE 100 it will increase the profile of the entire industry.”

Certainly there is a feeling that housebuilders have been unloved by the City, not just because of the sector’s poor reputation during the boom-bust years of the late 1980s and early 1990s, but also because it has not had a flagship firm.

Now it has, the debate is raging as to whether or not its larger rivals will try to compete. Barratt is the biggest firm by volume in the sector, at least until the acquisition is approved, and it seems certain to try to regain its crown. Kate Moy, an analyst at stockbroker Teather and Greenwood, argues that there is cash available for Barratt to spend: “I don’t think Barratt will be aggressive and disrupt the Westbury deal by putting in a counter offer, but it certainly hasn’t ruled out an acquisition of its own. And it has the firepower to do that, with £250m cash on the balance sheet as of June 2005.”

The other big boys, Taylor Woodrow and Wimpey, seem less likely to follow suit soon, following fairly disappointing recent results. Taywood, in particular, seems to be suffering indigestion after gobbling up Bryant and Wilson Connolly.

But for now, Persimmon is top dog. At the time of writing, its share price is just shy of £11, whereas its year-low was barely six quid. And while Persimmon executives are getting ready to pop open the champagne, maybe as much as one-third of Westbury's employees will be considering a job move.