Travis to become UK's largest Plumbing Company

Travis Perkins is set to become the UK's largest plumbing and heating business after agreeing a £557.6m deal to buy rival BSS.

The chairman of Travis Perkins, Robert Walker, said the company's board had "for some time" believed consolidation in the building materials industry would offer "significant scale benefits in terms of cost savings and improved operational efficiency".

The deal, recommended to shareholders by BSS's board on Monday, involves builders' merchant Travis Perkins paying 0.2608 company shares and 232.91p in cash for every BSS share.

The agreement also includes the payment of BSS's final 6.09p dividend for the year to March 31. It values the company's shares at 435.8p, a premium of 34.1pc to the closing price on May 27, the day before it emerged Travis Perkins, the owner of DIY chain Wickes, was in talks over a deal.

Analysts had speculated that a rival bidder, such as France's Saint-Gobain, could emerge for BSS, but Travis Perkins has irrevocable undertakings from 35pc of BSS's shareholders and a takeover battle now appears unlikely.

Imran Akram at Collins Stewart said: "This deal should bring healthy synergies to the group and remove major questions over Travis's growth prospects."

Mr Walker said the deal, which will send Travis Perkins beyond Wolseley in the UK industry, offered the attractive combination of BSS's expertise in sales and marketing with Travis Perkins' "scale and strengths, including margin management".

He added: "Travis Perkins believes that the recession accelerated the long-term trend of customers' increasing use of different distribution channels to source building materials. Travis Perkins believes this trend is set to continue, especially in light of the challenging outlook for public sector spending, albeit in part offset by an uneven private sector recovery.

"Against this backdrop, Travis Perkins believes there is a powerful strategic logic which underpins a combination of Travis Perkins' plumbing and heating activities with BSS."

Peter Warry, chairman of BSS, said the deal offered BSS shareholders "the opportunity to share in scale benefits".

Shares in BSS rose 10.8 to 427p, while Travis Perkins fell 1½ to 753p.

Travis Perkins is aiming for annual pre-tax cost savings of £25m by 2013, with £19m from purchasing benefits, such as lower supplier costs, and £6m from overhead savings. Travis Perkins said it could not rule out job cuts, but they were not a focus.

The companies also believe they can achieve "revenue synergies" through selling their products to each other's customers. For example, Travis Perkins is aiming to offer BSS's specialist plumbing and heating products to its building customers.

Source : Graham Ruddick - Telegraph.co.uk