Connells mulls £82m Countrywide takeover and issues damning verdict on rival

Connells mulls £82m Countrywide takeover and issues damning verdict on rival

 

Countrywide is already the subject of a £90m bid from private equity firm Alchemy which has now been put on hold as Connells considers its move.

Countrywide’s share price leapt 57 per cent to 228p on opening this morning following the news, the first time it has been above 200p since the pandemic hit, but has since eased back slightly to 208p.

In contrast, the share price dropped 20p to £1.64 when the Alchemy bid was revealed in October.

The Connells bid, if formally submitted under its current terms, would purchase all shares at 250p each – a 72 per cent premium on the 145p at closing on Friday and valuing the company at around £82m.

Connells has until 5pm on 7 December to announce a firm intention or not to make an offer for Countrywide.

 

‘New management needed’

In a statement to the London Stock Exchange, Connells, which is wholly owned by Skipton Building Society, said it approached the Countrywide board on 26 October about a possible cash offer and is currently carrying out due diligence to determine the feasibility of making an offer.

It highlighted that Countrywide is in urgent need of recapitalisation to reduce its debt, without which there was a risk of it going into administration.

“Connells believes that Countrywide needs a new management team, with real estate agency expertise, and a new strategy to turnaround the business,” it said.

“The enormous scale of the challenge that the new team will face can be seen by the fact that they will need to reverse the performance of a business that has lost over £500m pre-tax over the last three calendar years.

“Connells also believes that significant and sustained investment is required in Countrywide’s technology, network and people to put the business back on a solid footing in a challenging market.

“This required investment will reduce Countrywide’s standalone profitability and cash flow in the short and medium term,” it added.

Connells argued that its move would mean Countrywide shareholders “could avoid the significant costs and risks associated with either the Alchemy Proposal or remaining an independent company,” instead receiving an immediate cash premium of 72 per cent to the share price.

“Connells will assess the making of any firm offer for Countrywide in light of the current difficult market conditions, its due diligence findings, the level of additional investment that will be needed by Countrywide and the extent of the turnaround required in the business,” it added.

 

‘Early stage’

Countrywide has been under financial pressure for two years and was the subject of a takeover bid by LSL earlier this year which collapsed when LSL pulled out in March.

In 2018 it issued two profit warnings and eventually agreed a £140m rescue bid to help support its debt burden.

Shares were worth £327 each at its peak in May 2014, but fell steadily from £299 each in May 2015 to its lowest point of 46p in April.

Revealing the approach, the Countrywide board said it was “at an early stage and Connells Limited has indicated that any offer is conditional upon, among other things, completion of confirmatory due diligence and the recommendation of the Board of Countrywide.

“There can be no certainty that an offer will be made, nor as to the terms of any such offer, should one be made.”