Barratt: Approval From UK Antitrust Watchdog Outstanding but Unlikely to Stymie Redrow Tie-Up

No-moat Barratt Developments' shares screen appealingly as the plan to merge with smaller rival Redrow progresses toward completion. Barratt and Redrow shareholders have voted to approve the merger deal, which was announced in early February. Antitrust clearance is the key remaining hurdle to deal closure, with the Competition and Markets Authority—UK’s antitrust watchdog—recently announcing a formal investigation of whether competition in the sector would be substantially reduced if the deal proceeds. The mooted merger is set to create a clear industry leader, which will command an estimated 10% share of the UK homebuilding market. Still, we expect the CMA will allow the deal to proceed, given the otherwise fragmented nature of the UK homebuilding market. A time value of money adjustment leads us to raise our fair value estimate by 3% to GBX 760 per share.