The UK’s biggest housebuilder, Barratt, is planning to buy the rival Redrow in a deal worth more than £2.5bn.

An update to the market this morning revealed the two companies had reached an agreement over an all-share offer from Barratt, which will result in it cementing its position as the country’s largest housebuilder.

The combined group will have a turnover of more than £7bn, and a pipeline of 92,300 homes. The combined market capitalisation was more than £7bn based on when the markets closed yesterday.

The deal, which has been backed by both boards, will immediately result in Barratt taking hold of 67.2% control of the whole group, with Redrow shareholders holding on to 32.8% of the group. The new group will be called Barratt Redrow plc, and under plans set out on Wednesday, the Redrow brand will be retained for marketing new homes.

The Barratt chief executive, David Thomas, who will stay on to lead the new group, said: “We have great respect for Redrow, its overall strategy, its leadership and employees, and its high-quality homes and communities.

“The combined group would leverage the respective strengths of both Barratt and Redrow, delivering significant benefits to our people, our supply chains, and – most importantly – our customers.”

The deal is also supported by Steve Morgan, who founded Redrow 50 years ago, and said the new enlarged group would create a “standout builder” that could accelerate the delivery of much-needed homes.

He said: “Barratt is a homebuilder I have long admired due to their like-minded attention to quality. I am confident that the Barratt-Redrow combination with their three high-quality complementary brands, will create a standout home builder for the future and accelerate the delivery of much-needed homes across the UK.”

This is only the second acquisition by Barratt in the last 16 years after it bought William Bowden in a £2.2bn deal in 2007, which propelled it to become the biggest housebuilder in the country. The business still operates the former William Bowden company David Wilson Homes as one of its development arms.

Barratt is currently the country’s largest housebuilder, ahead of Taylor Wimpey, completing 17,200 homes last year and posting profits of £705m on turnover of more than £5.3bn.

Redrow is the seventh biggest builder, having completed 5,400 homes last year and posting pre-tax profits of £395m on a turnover of £2.1bn.

In the statement, directors said they believed the deal would maintain a better balance sheet that would protect the group to operate through the current market cycle, as well as providing a strong platform for better returns for shareholder over the medium term.

They estimate cost synergies of about £90m a year in three years’ time, with savings from procurement savings and “rationalisation of divisional and central functions” in the group.

Caroline Silver, who chairs Barratt, will lead the combined board. The current Redrow chief executive, Matthew Pratt, will stay as chief executive officer of Redrow exclusively.

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