Two of Britain’s biggest housebuilders have agreed to combine after Vistry Group struck a £1.3bn billion cash and shares deal to takeover smaller rival Countryside.

The deal would represent a victory for two US activist investors in Countryside, Browning West and Inclusive Capital Partners, which have been pushing for a sale of the struggling company.

The takeover would give Vistry increased scale as the housebuilding sector braces for tough period ahead for the market as recession looms.

Vistry, formerly Bovis Homes, was valued at £1.6bn before the deal, while Countryside was worth £1.1bn. Countryside shareholders would receive 0.255 of a share in the new company and 60p in cash for every Countryside share they held, leaving them with about 37% of the merged business.

If approved by shareholders, the deal would see Vistry grow from the seventh biggest UK housebuilder by turnover to roughly the fourth biggest. Vistry built more than 6,500 homes in 2021, while Countryside developed almost 5,400.

The activist campaign at Countryside followed a difficult 12 months during which its value has slumped by more than half. In January forced out its chief executive as it revealed that trading was worse than expected even as rivals had cashed in, and in June, it formally put itself up for sale shortly after rejecting an offer from Inclusive.

The deal, at an implied value of 249p for each Countryside share, represented a premium of only 9% to its closing share price on Friday shortly before the deal was announced, which was 228p. That was far below its peak at above 560p a share in August last year.

Greg Fitzgerald, the Vistry chief executive who would lead the combined business, said: “This proposed combination has a highly compelling strategic rationale. It will create a leader in the Partnerships housing sector, with the scale and expertise to accelerate profitable growth across both Partnerships and Housebuilding, and expand the delivery of much needed affordable housing across England. The proposed Combination will add the strength of the Countryside brand to Vistry’s own well-established Bovis Homes and Linden Homes brands and will leverage the skills and market knowledge of both the Countryside and Vistry teams.

“We believe there is clear potential to generate material value for both Vistry and Countryside Shareholders and wider stakeholders from a combined group with enhanced scale and superior returns and to improve the performance of key parts of Countryside’s business. We welcome the support of the Countryside Board and the support we have already received from a significant proportion of Countryside Shareholders for the Combination.”

Also commenting on the combination, Douglas Hurt, the chairman of Countryside, added: “The Combination will create a leading, enlarged partnerships business and is an opportunity to leverage both Countryside’s brand and place-making experience with the growing Vistry partnerships business, alongside Vistry’s established housebuilding business. The scale of the Combined Group will enable the delivery of synergies, operating efficiencies and further growth for the benefit of Countryside Shareholders and wider stakeholders.

“The Countryside Board has carefully reviewed this combination and believes it offers the best potential to create the greatest value for Countryside shareholders.”