The UK’s biggest housebuilder, Barratt, has struck a deal to buy its smaller rival Redrow for more than £2.5bn. The two companies have reached an agreement over an all-share offer from Barratt, which will cement its position as the country’s largest housebuilder. The merged group, to be called Barratt Redrow, is expected to build about 23,000 homes a year and have a turnover of more than £7bn. The combined market value was £7.2bn when financial markets closed on Tuesday. The deal is supported by both boards and by Steve Morgan, who started Redrow 50 years ago with a £5,000 loan from his father after working on buildings sites. He still holds 16% of the shares. Morgan said Barratt was a company he had “long admired,” adding that the merger would create a “standout builder” that would speed up the construction of much-needed homes. Barratt shareholders will retain 67.2% of the whole group leaving Redrow shareholders with 32.8%. The Redrow brand will be retained for marketing new homes and its Heritage collection, aimed at more affluent buyers, added to the portfolio, which also comprises Barratt’s more affordable David Wilson Homes. Barratt’s chief executive, David Thomas, who will lead the new group, said in some cases, all three brands could be on the same site, adding: “We see the opportunity to expand Redrow’s geography.” Shareholders will vote on the deal in mid-May, which will also need approval from regulators. The companies hope the deal will be completed in the second half of the year. Last year, Morgan, a major donor to the Conservatives under Boris Johnson’s leadership, attacked the government for being “so anti-house-building” in its proposals for planning reform. The deal comes as developers grapple with the biggest housing downturn since the financial crisis. Both companies reported sharp declines in output, revenue and profits but said sales had improved in the new year amid increasing mortgage approvals and reduced interest rates. Redrow’s pre-tax profit plunged by 58% to £84m in the six months to 31 December, while Barratt’s was down by 81% to £95.2m, partly because of a £62m bill for building safety repairs to older homes. The RBC Capital Markets analyst Anthony Codling said: “Housebuilders are seeing the underlying housing market pick up and for those who are short of land into a recovering market, sometimes it is easier to buy a landbank than build one.” This is only the second acquisition by Barratt in the last 16 years after it bought Wilson Bowden for £2.2bn in 2007, just before the financial crisis,making it the biggest housebuilder in the UK and giving it the David Wilson brand. The Redrow share price jumped by 13% to 674p on news of the deal, while Barratt shares fell by more than 7% to 491p. Redrow investors will receive 1.44 new Barratt shares for each Redrow share they own. This means Morgan’s stake is worth £373m at the current Barratt share price, down from £400m based on Tuesday’s closing share price of 530p. The Redrow chief executive, Matthew Pratt’s, stake is worth £760,000, while the company’s chief financial officer, Barbara Richmond, owns shares worth more than £4m. Pratt will stay on and run the Redrow business, while Richmond is staying for 12 months to oversee the integration. Caroline Silver, who chairs Barratt, will lead the combined board. Steve Hoey, the chief executive of the non-profit group Turning Lives Around and the chair of the Homelessness Prevention Forum, tweeted: “Surely this will be the biggest builder; will they build what we need?” Barratt is ahead of Vistry Group, completing 17,200 homes last year and posting profits of £705m. Vistry, which uses the Bovis Homes, Linden Homes and Countryside Homes brands, completed 16,124 homes last year. Vistry bought Countryside for almost £1.3bn in 2022. Redrow is the sixth-biggest builder, having completed 5,400 homes last year and reporting pre-tax profits of £395m. The Investec analyst Aynsley Lammin said: “The deal looks very sensible given the challenging planning and land backdrop, particularly assuming that sales rates and the profit outlook gradually improves from here. The all-share nature of the deal is astute, retaining a robust balance sheet.” The companies estimate cost savings of about £90m a year in three years’ time, from procurement savings and “rationalisation of divisional and central functions” in the group. Site and sales office-based employees are not expected to be affected. Richard Hunter, the head of markets at the trading platform Interactive Investor, said: “The move is a seismic shift for the sector, reflecting not only the challenges which housebuilders have more recently faced in terms of the economic backdrop, but also a move to shore up the capabilities of two major players.”