(Bloomberg) -- Barratt Developments Plc has agreed to buy rival Redrow Plc, a deal that would create the UK’s biggest homebuilder. 

With the acquisition, Barratt Developments is taking a major bet on the prospects for a rebound in Britain’s beleaguered housing market ahead of a general election. The deal would give Barratt access to a vast land bank at a time when pledges to increase housing output are likely to play a central role in the upcoming general election.

The all-share offer values Redrow at more than £2.5 billion ($3.2 billion), according to a statement Wednesday. 

The UK’s housing market has been helped by government intervention over the past decade with stimulus measures becoming a major driver of sales for Barratt and its peers. Labour, which is ahead in the polls, has pledged to build 1.5 million homes over the next parliament should it get in. While the party has yet to spell out exactly what it would do to stimulate output, any major policies are likely to be a boon for the largest homebuilders who dominate output in the sector.

Read more: Why Mortgages and Housing Are Hot UK Election Issues: QuickTake

The acquisition is one of the most significant UK housebuilder deals in the past decade, exceeding Vistry Group Plc’s £1.25 billion purchase of Countryside Partnerships Plc in 2022. The newly combined group will be named Barratt Redrow Plc and will aim to accelerate the delivery of homes across the UK. 

Redrow shares rose as much as 16.7% in early London trading, while Barratt fell as much as 9.3%. 

Under the terms of the deal, Redrow shareholders will hold about 32.8% of the group and Barratt shareholders will hold approximately 67.2%. It is subject to shareholder approval and will be arranged via a court-sanctioned scheme of arrangement.

Given the size of the firms, the deal, however, may face antitrust hurdles, according to Iwona Hovenko, real estate and construction analyst at Bloomberg Intelligence. Barratt is currently the second-biggest UK housebuilder by market capitalization, and Redrow the sixth.

Redrow’s founder Steve Morgan, whose family investment vehicle is Redrow’s largest shareholder, is supportive of the combination, according to the statement. 

Barratt’s board said it believes the deal can achieve pre-tax cost synergies of at least £90 million on an annual run-rate basis by the end of the third year after completion.

The past year has been turbulent for the nation’s developers as higher interest rates deterred buyers and increased their cost of capital. Sentiment is slowly improving on increased expectation of lower interest rates. 

The company said in a separate statement Wednesday it saw signs of improvement in both reservation rates and buyer sentiment since the start of January.

Persimmon Plc and Taylor Wimpey Plc issued similarly optimistic trading updates last month, both reporting that they built more homes than previously anticipated in 2023. The latter said it expected full-year operating profit to be at the top end of its guidance range, noting “good levels” of inquiries so far this year.

Still, Britain’s developers are under pressure after a year of lower sales. Scottish builder Stewart Milne Group last month announced it has gone into administration with the immediate loss of more than 200 jobs.

Barratt said the outlook for both the UK economy and housing market remained uncertain. The homebuilder said it maintained a highly selective approach to land investment in the second half of 2023 because of that uncertainty. 

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