Countryside Partnerships PLC (LSE:CSP) and Vistry Group PLC (LSE:VTY) are nearing a deal to merge and form a $3.2 billion residential developer, according to people familiar with the matter, representing a win for U.S.-based activist investor Browning West LP. The deal, in which Vistry is expected to pay mostly stock for its counterpart, could be announced as soon as this coming week, the people said. A possibility remains, however, that the talks break down before terms are finalized.

By joining forces Countryside and Vistry would have a combined market value of about £2.75 billion, equivalent to $3.2 billion, based on their latest values. The combined entity would gain greater scale to better combat the risk of a slowing housing market in the U.K. amid record-setting inflation, rising interest rates and the prospect of a lengthy recession. The stocks of both Countryside and Vistry are lower so far in the year 2022.

Countryside, though, has underperformed and the company has suffered from senior management upheaval, placing it under greater shareholder pressure to strike a deal. In January, the company's then chief executive officer resigned following the release of disappointing profit and revenue results. That same month, Peter Lee, a partner at Browning West, which currently owns about 15% of Countryside, joined the board.

Then in June, 2022, the builder, which has most recently been headed by interim co-chief executives, put itself up for sale. That move came following pressure from Browning, which focuses its investments in North America and Western Europe, and Countryside's rejection as too low of a £1.5 billion takeover offer from Inclusive Capital Partners LP. A deal involving mostly stock, like the transaction that Countryside and Vistry are targeting, can overcome that challenge by allowing shareholders of each company to hold shares in the combined entity and benefit from cost savings and any stock gains if the merger succeeds and overall market conditions improve.