Bovis Homes, & Galiford Try's Linden Homes, Merger Potential

Statement regarding a potential combination between Bovis Homes(1) and Galliford Try's Linden Homes(2) and Partnerships & Regeneration divisions

Galliford Try would be a well-capitalised, standalone construction-focused group

The Boards of Bovis Homes Group PLC ("Bovis Homes") and Galliford Try plc ("Galliford Try") announce that they have re-engaged in preliminary discussions regarding a potential combination (the "Potential Transaction") of Bovis Homes and Galliford Try's Linden Homes and Partnerships & Regeneration divisions (the "Housing Businesses") and have agreed on high-level terms upon which the Potential Transaction would be implemented. There remains significant work to be completed before definitive transaction documentation can be agreed, including agreement of detailed commercial terms, completion of due diligence and arranging transaction funding.

The Potential Transaction relates solely to a combination of Bovis Homes and Galliford Try's Housing Businesses and does not relate to a merger with Galliford Try. The Potential Transaction envisages Galliford Try remaining a UK-listed construction-focused group owned entirely by Galliford Try shareholders.

Potential Transaction terms

If the Potential Transaction proceeds, it is expected to value the Housing Businesses at £1.075 billion comprising:

-      the issue to Galliford Try shareholders of 0.57406 Bovis Homes shares per Galliford Try share, which would equate to 63,739,385 Bovis Homes shares (in aggregate) valued at £675 million based on Bovis Homes' closing share price on 9 September 2019, being the last business day prior to this announcement; plus

-      the payment of £300 million in cash (the "Cash Consideration") to Galliford Try; plus

-      the transfer to Bovis Homes of Galliford Try's 10-year debt private placement of £100 million (the "Debt Private Placement").

In addition, Galliford Try's pension schemes would be transferred to Bovis Homes at completion of the Potential Transaction on terms acceptable to the Galliford Try pension schemes' trustees and Bovis Homes.

The Cash Consideration would be subject to customary completion adjustments.

Strategic rationale

The Bovis Homes and Galliford Try Boards believe that the Potential Transaction will provide Bovis Homes with an enhanced housebuilding platform to compete more effectively in the UK housebuilding market, accelerate Bovis Homes' move into the higher growth partnerships and regeneration markets and provide Bovis Homes with a complementary geographical footprint and strategic land bank.

The Bovis Homes and Galliford Try Boards believe that the Potential Transaction will generate significant synergies and create substantial shareholder value. The synergies are expected to originate from both Bovis Homes and Galliford Try and comprise both operational and procurement savings.

The Galliford Try Board believes that the Potential Transaction will result in Galliford Try becoming a well-capitalised standalone construction-focused group, benefitting from the recent operational restructuring which refocused the business to deliver improved future performance. The division's strengths in UK building and infrastructure, particularly in the highways and water sectors, along with the spread of work for both public and private clients provide a strong foundation for Galliford Try's future as an independent construction group. In addition, the Aberdeen Western Peripheral Route joint venture continues to negotiate on the significant claim with the client and Galliford Try shareholders will continue to benefit from any future resolution of this claim.

Cash Consideration funding

If the Potential Transaction proceeds, the Cash Consideration of £300 million would be financed by: (i) an equity placing by Bovis Homes, by way of an accelerated bookbuild, for cash of 9.99% of Bovis Homes' existing share capital (the "Placing"); and (ii) the raising of additional debt by Bovis Homes and utilisation of its existing balance sheet resources. It is the intention of the Bovis Homes Board to retain a strong and robust balance sheet.

In addition, if the Potential Transaction proceeds, the £60 million of capital return expected to be paid in 2019 would, subject to shareholder approval, be returned by way of a bonus issue (the "Bonus Issue") settled at completion of the Potential Transaction through the issue of fully paid Bovis Homes shares to Bovis Homes shareholders. The Bonus Issue would equate to 5,665,723 shares (in aggregate) valued at £60 million based on a Bovis Homes share price of £10.59, being the closing share price on 9 September 2019.

In addition, it is anticipated that Bovis Homes' 2019 final dividend will be replaced by a second interim dividend which will be paid in cash to Bovis Homes shareholders only.

Following completion of the Potential Transaction, and taking into account the issue of new Bovis Homes shares under the Placing and the Bonus Issue, Galliford Try shareholders would own in aggregate approximately 29.3% of the enlarged Bovis Homes entity.

Given the size of the Potential Transaction, it would be a Class 1 transaction for both Bovis Homes and Galliford Try pursuant to the UK Listing Rules and would therefore be subject to a shareholder vote by both sets of shareholders.

The discussions between Bovis Homes and Galliford Try are at an early stage and a definitive announcement on the Potential Transaction is subject, inter alia, to:

-      the completion of satisfactory due diligence by Bovis Homes;
-      the completion of satisfactory due diligence by Galliford Try;
-      the finalisation of the potential synergies of the Potential Transaction;
-      the agreement of definitive transaction documentation;
-      the approval of the transfer of Galliford Try's Debt Private Placement;
-      the Placing;
-      the raising of additional debt on terms acceptable to Bovis Homes; and
-      the transfer of Galliford Try's pension schemes to Bovis Homes on terms acceptable to the Galliford Try pension schemes' trustees and Bovis Homes.

Commenting on the Potential Transaction, Greg Fitzgerald, CEO of Bovis Homes said:
"While discussions are still at early stages, this potential combination represents an exciting and transformational opportunity to create a leading UK housebuilder with enhanced scale, well-positioned to make the most of current opportunities and drive forward on our commitment to delivering high-quality homes and excellent service that our customers and housing partners deserve. We know that we only succeed as a business if we succeed for them.
Galliford Try's Partnerships business is a fantastic brand, with a very strong position in the UK. Combining it with Bovis Homes' newly launched Partnerships Housing Division would enable us to become the partner of choice for delivering more affordable homes at a time when these are needed the most.
Based on my familiarity with the businesses and the compelling strategic rationale, I think this is a massive opportunity and as a substantial shareholder of Bovis Homes, my intention is to subscribe to the placing if the transaction proceeds."

Commenting on the benefits of the Potential Transaction for Galliford Try, Graham Prothero, CEO of Galliford Try said:
"The transaction is an exciting opportunity to create two strategically focused businesses. The significant cash element within the consideration provides a firm foundation for our newly reorganised Construction business to flourish as an independent company. The strong balance sheet and excellent fit between the combining businesses will be a superb platform for both private housebuilding and partnerships, creating a unique and well-positioned housing provider.
Much remains to be done before we can present the detailed proposal to our shareholders and wider stakeholders. However, if completed, we are confident this deal will generate significant value for shareholders and a bright future for all three of our businesses."

Discussions are ongoing and there is no certainty that the Potential Transaction will take place nor of the final detailed terms if it does so. A further announcement will be made when appropriate.

The person responsible for making this announcement on behalf of Bovis Homes is Earl Sibley, Group Finance Director. The person responsible for making this announcement on behalf of Galliford Try is Kevin Corbett, General Counsel and Company Secretary. This announcement contains inside information for the purposes of article 7 of EU Regulation 596/2014.

1. Bovis Homes, the FTSE 250 listed house builder, is a UK builder of high-quality, traditional homes, ranging from two-bed starter properties through to large five-bed family homes, with the design and construction blending tradition with innovation, and creating quality dwellings and developments with contemporary living standards. For the year ended 31 December 2018, the group completed 3,759 homes. In April 2018, Bovis Homes launched its new housing range of 28 new house types for both private and affordable housing. The Phoenix housing range is designed to meet today's customers' needs including more open plan living, larger bedrooms and better storage. It also reflects a complete construction specification review to ensure time, material and labour efficient designs. Customer satisfaction is central to Bovis Homes and is reflected in the award of 4 stars by the HBF in its annual customer satisfaction survey results published in March 2019.

2.   Galliford Try plc is a leading UK housebuilding, regeneration and construction group. It is listed on the London Stock Exchange and a member of the FTSE 250. Housebuilding - through its Linden Homes business - develops private and affordable homes in prime locations with a commitment to providing excellent customer services. Galliford Try Partnerships - its regeneration business - delivers mixed-tenure solutions working with housing association, local authority and private sector partners - a unique and powerful platform, combining contracting, regeneration and mixed-tenure development with a proven track record of delivery and quality. Operating as Galliford Try and Morrison Construction, the Construction business carries out building and infrastructure with clients in the public, private and regulated sectors across the UK focusing on building, transportation, water and environmental. At the end of the last financial year to 30 June 2018, the Group generated revenue of £3.1bn.

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