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Carburton Street, London – Beazer Group (LSE: BZR) and Bryant Group (LSE: BRYN) announced a merger this morning that will see the creation of the UK's largest homebuilder. The combination of the eighth- and ninth-ranked housebuilders in the UK will form a new housebuilding group named Domus with a market capitalization of £759m. Why Are They Merging? The rationale behind the merger is to save on fixed costs. The two companies cited a number of other benefits, which included procurement synergies and complementary brands and development skills. However, the principal reason is to cut overhead expenditure. The merger is expected to see the axing of up to 250 jobs, mainly in head office functions. The annual cost savings and trading synergies, according to the company, will be around £20m per year. Based on the last set of annual accounts, administrative expenses at Beazer came in at £35m and those of Bryant were £30m for the year. Clearly, lopping off £20m from the overheads of the combined group will represent a significant cost reduction. Today's announcement from the two housebuilders comes just one day after the publication of a not-so-widely touted Housing Policy Statement entitled "The Way Forward for Housing" from the Department of Environment, Transport and the Regions. The Policy statement was the result of a consultation process on the Housing Green Paper, "Quality and Choice – A Decent Home for All." The general gist of the document is the provision of affordable homes for everyone. Unfortunately, house prices are a function of supply and demand and the UK has experienced a significant rise in house prices over the past two years. It is unlikely that prices will come down on their own accord and will most probably be catalysed by the release of more land from the Government under the Urban Regeneration Scheme. When this happens, it will be the fittest housebuilders like Domus that will benefit, as lower house prices will necessarily impinge on bottom line profit. Where Next? Sector dissector: Housebuilding sector
Beazer website
Bryant website