Britain’s biggest housebuilder has agreed to buy rival Redrow in a deal worth £2.5bn, representing a premium of about 27% for shareholders.

Barratt Developments said the deal will boost volumes of homes built and sold, with the combined group boasting a total land pipeline of 92,345 plots by 31 December.

Barratt will acquire the entire share capital of Redrow, creating a combined business which they plan to rename as Barratt Redrow.

On completion of the merger, which must first be approved by both shareholders and the financial regulator, Redrow investors will hold about a third of the combined group and Barratt shareholders two-thirds.

Barratt Redrow will enjoy annual cost synergies of £90m by year three, according to the two housebuilders, with associated costs of the deal in the interim of £73m. There was no mention of projected job losses.

In its latest half-year results, Barratt saw its adjusted pre-tax profit fall nearly 70% to £157.1m in the six months to 31 December. Revenue for the period dropped by 33.5%.

Barratt’s adjusted operating margin fell from 18.4 per cent to 8.4 per cent, while its net cash stash slipped from £969million to £753m.

Forward sales at the end of January fell to 8,760 homes from 10,854 a year earlier at a value of £2.26bn, down from £2.66bn last year.

David Thomas, group chief executive of Barratt, said: “We have great respect for Redrow, its overall strategy, its leadership and employees, and its high-quality homes and communities. This is an exciting opportunity to bring together two highly complementary companies, creating an exceptional homebuilder in terms of quality, service and sustainability, able to build more of the high-quality homes this country needs. 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.”

Matthew Pratt, group chief executive of Redrow, commented: “Redrow and Barratt combined creates a leading UK homebuilder. Together, we’ll be in a much better position to offer a broader range of high-quality and energy efficient homes to customers.

“The Redrow brand, with its premium, characterful homes, has an excellent reputation and will remain a key part of the Combined group. As with Barratt, Redrow’s fifty-year success story is based on its people, products and supply chain partners. Both businesses are a great fit and there are many exciting opportunities to innovate and share knowledge across a range of different areas.”

Steve Morgan, Redrow’s founder, added: “During the 50 years since I founded Redrow, I could not be more proud of the unique reputation it has earned for building premium homes and thriving communities.

“Barratt is a home builder I have long admired due to their likeminded 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.”

Following Completion and subsequent integration, the Board and executive leadership team of the Combined Group will look like this:

Caroline Silver, Barratt’s Non-Executive Chair, will lead the Combined Group as Non-Executive Chair. Barratt’s Chief Executive, David Thomas, will be Group Chief Executive of the Combined Group. Mike Scott, Chief Financial Officer of Barratt, will be Chief Financial Officer of the Combined Group, and Steven Boyes, Chief Operating Officer and Deputy Chief Executive of Barratt, will be Chief Operating Officer and Deputy Chief Executive of the Combined Group.

The board of directors of the Combined Group will be a combined board comprising the existing executive and non-executive directors of Barratt, with the addition of Matthew Pratt, currently Group Chief Executive of Redrow, who will join the Combined Group and assume the role of Chief Executive Officer, Redrow, and Group Executive Director, and Nicky Dulieu, currently Senior Independent Director of Redrow, and Geeta Nanda, currently Non-Executive Director of Redrow, who will both join as Non-Executive Directors.

Barbara Richmond, Group Finance Director of Redrow, has agreed to join the Combined Group to support the integration for a period of not less than 12 months to ensure continuity and with a view to realising the benefits of the Combination for both sets of shareholders.

Any executive or non-executive directors of Redrow not appointed to the board of the Combined Group will step down from the Redrow board upon Completion.