March 27, 2007 | posted by Michael Baxter in IABN |

Back in January, if you had been traversing the UK’s M40, and you decided to stop for a break at the service station, you may have spotted two smartly dressed gentlemen huddled in a corner engrossed in conversation. If you had been able to listen in, you might have heard them say something like this:”you’ve got the brains, I’ve got the brawn, let’s make lots of money.”

Well no doubt the two men - that’s chief executives Ian Smith of housebuilder Taylor Woodrow and Peter Redfern of rival George Wimpey - were more circumspect in the way they worded it. But they were talking complementary strengths, and discussing the merits of a merger. And, in effect, the words from the Pet Shop Boys single summed it all up pretty well.

Taylor Woodrow has lots of land sitting there waiting to be built upon.

George Wimpey, on the other hand, seems to be more skilful at getting the cost of building down. To put it in percentage terms, at George Wimpey the cost of building is 51.4 percent of turnover, but 55.5 percent at Taylor Woodrow.

In the UK, the two companies occupy the number three and four slots in the housing building league. But in the US, they are comparative minnows. A merger of the two firms would see them leap up the US rankiings

So put all those areas of complementary strengths together and what do you have? Mr Smith put it this way yesterday: “A marriage made in heaven.”

In fact Ian Smith said: “We have an underperforming UK business, with margins at the lower reaches of the industry and some investor impatience with performance,” while his opposite number at George Wimpey said: “Together it is a significantly better business than either company on their own. We both had improvement plans. We can now get those plans to move more quickly.”

So that’s the reason. What does it mean?

The plan is for this to be a merger done on paper only, no money will change hands and Taylor Woodrow will end up with 51 percent on the new firm, but its chief exec, Ian Smith, who is still relatively new in the hot seat, will be off to pastures new. (Although he will be getting a sizeable pay cheque for his endeavours.)

The combined workforce of the new company will be 14,000, with only a relatively modest number losing their jobs.

The newly formed business will be listed on the FTSE 100, and will boast a turnover in excess of £6 billion a year.

Last month, a deal was announced for the merger of Barratt Development and Wilson Bowden.

Once the dust has settled, and assuming both mergers go through, then the Wimpey Woodrow combo will entail a slightly higher build level than the rival Barratt and Wilson Bowden company

But all this leaves one question hanging. Why merge now when the US market is in such a state and many fear the UK property sector has peaked? The BBC quoted a Taylor Woodrow spokesman as saying the UK needs 200,000 new homes a year and only 150,000 are being built - meaning that, fundamentally, the UK market is strong.

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