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Britain's largest homebuilder, Barratt, has agreed to purchase its smaller rival, Redrow, in a significant all-stock transaction valued at approximately 2.52 billion pounds ($3.18 billion).

This strategic move is seen as a response to the recent recovery signs in the housing market. The combined entity, to be named "Barratt Redrow," plans to deliver over 22,000 homes annually in the medium term, a significant increase from Barratt's current capacity.

The deal, which has received approval from both companies' boards, will result in Redrow shareholders receiving 1.44 new Barratt shares for each share they hold, with Barratt's shareholders owning about 67.2% of the merged group.

The acquisition is expected to enhance earnings in its first year and achieve annual cost savings of at least 90 million pounds by the third year.

This consolidation comes at a time when British housebuilders are navigating challenges due to high interest rates and rising building costs, yet the market is showing signs of stabilization, spurred by cheaper mortgage loans and expectations of lower interest rates.