Wimpey acquires Laing
The Board of George Wimpey has announced that it has conditionally agreed
to acquire Laing Homes from John Laing for a total consideration expected
to amount to approximately £297 million (including the repayment
of intra-group debt).
The consideration will be paid in cash with the repayment of £30
million of intra-group debt on completion and the balance paid in instalments
by 31 December 2003. After taking the benefits of this payment schedule
into account, the price represents a small discount to the net asset value
of Laing Homes at completion.
The acquisition of Laing Homes represents an excellent opportunity to
accelerate George Wimpey’s strategy to develop a UK premium brand
business:
* Laing Homes has a strong presence in the premium market, with well-located
sites in the Thames Valley, the Home Counties and the Midlands
* Its average selling price in 2002, excluding social housing, is expected
to be around £280,000, almost twice that of George Wimpey’s
existing business. In 2001, Laing Homes completed 1,232 homes, generating
a turnover of £312 million
* 'Laing Homes' is a strong and well-recognised premium brand, with a
record of winning leading awards for the housebuilding industry. George
Wimpey will apply this brand to its premium product offering
* The management and employees of Laing Homes have an excellent skill
base appropriate for a premium housebuilder, notably in marketing, customer
service and land purchasing processes. To ensure these skills are maintained,
George Wimpey will run Laing Homes separate to and distinct from George
Wimpey’s existing UK business
The terms and structure of the transaction are beneficial to George Wimpey’s
shareholders:
* George Wimpey is acquiring a substantial presence in the premium market,
with a leading brand name, without paying any premium to net asset value
* The deferred payment structure will enable George Wimpey to continue
its land purchase programme, designed to sustain the margin improvements
in its existing business, whilst maintaining comfortable gearing and interest
cover levels
* George Wimpey is only acquiring Laing Homes’ premium homes business.
George Wimpey is not acquiring either John Laing’s US housebuilding
activities or its luxury UK housebuilding activities (Beechcroft and the
investment in Octagon)
* Furthermore, George Wimpey is not acquiring Laing Homes’ specialist
social housing operation, Laing Partnership, or Laing Training. The exclusion
of these lower margin businesses will allow George Wimpey to focus exclusively
on Laing Homes’ higher margin premium homes business
* George Wimpey’s management has carried out, on an exclusive basis,
extensive due diligence on the Laing Homes businesses. In doing so, it
has had high levels of cooperation from Laing Homes management
* George Wimpey’s management team has considerable experience from
the successful acquisition and integration of McAlpine Homes and is therefore
well positioned to incorporate Laing Homes into the enlarged group
* Annual cost savings of at least £8 million are expected to arise
in 2003 from the elimination of duplicated overheads, and a further £2
million should arise from the application of improved procurement terms
that George Wimpey already receives from major suppliers. One-time integration
costs, to be charged in George Wimpey’s 2002 accounts, are expected
to amount to approximately £7 million
* The acquisition is expected to be earnings enhancing from day one
Due to its size, the acquisition is conditional upon the approval of George
Wimpey shareholders. It is also subject, inter alia, to the approval of
John Laing shareholders.
Commenting on today’s announcement, Peter Johnson, Chief Executive
of George Wimpey said:
'This acquisition gives us a premium brand and a premium business without
having to pay any premium to book value. The deferred payment structure
allows us to continue uninterrupted our programme to increase operating
margins in our existing business. We are looking forward to working with
the excellent management team at Laing Homes to ensure that this business
is well-positioned for the future.'
The consideration for the acquisition of Laing Homes, including the repayment
of intra-group debt of approximately £30 million, is expected to
be approximately £297 million, being £9 million above the
expected net asset value on completion. This will be paid in cash in accordance
with the following schedule:
* the repayment of £30 million of intra-group debt on completion;
* £50 million on 31 December 2002;
* £120 million on 31 March 2003; and
* the balance on 31 December 2003.
The consideration will be paid from existing resources.
In its interim results for the six months ended 30th June 2002 announced
on 4th September 2002, George Wimpey indicated that demand for housing
in the UK and US remained strong and that the Company was continuing to
improve operating margins, maintaining tight control over cash and buying
land on improved terms.
Furthermore, it was stated that, barring unforeseen circumstances, results
for the full year would be well ahead of the market expectations prevailing
at that time, which the Directors continue to believe will be the case.
The market expectations to which the Directors were referring on 4th September
2002 were the consensus forecast at that time of a profit on ordinary
activities (before goodwill amortisation, exceptional items and tax) of
£227 million.
In John Laing’s interim results for the six months ended 30th June
2002 announced on 2nd September 2002, John Laing indicated that their
house building business had had a good first half and had benefited from
conditions in the UK housing market where prices continued to grow, partially
fuelled by undersupply. It was reported that the reduction in profits
before interest compared to the prior year followed the completion in
the first half of 2001 of a very large development in South London where
margins were exceptionally high. Furthermore, John Laing indicated that
they believed house prices would be stable in the second half of 2002
and that the strong forward sales position gave them confidence that Laing
Homes would make good progress and continue to prosper.
Summary financial information relating to Laing Homes
Turnover
1999: £272.7m
2000: £291.0m
2001: £311.6m
Operating profit
1999: £36.2m
2000: £48.1m
2001: £51.5m
