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nHousebuilder Persimmon鈥檚 long-anticipated ascent to the FTSE 100 appeared imminent this week as it confirmed that it was behind an approach to rival Westbury.

Persimmon, whose shares rose almost 10% to 1042p when it made the announcement to the stock exchange on Monday, would be the first housebuilder or contractor to make it into the FTSE 100.

Shares in Westbury, the smaller of the two companies, rose 6% to 494p on Friday when it announced just before close of play that it had received an approach. They jumped a further 13% to 556.5p on Monday when Persimmon emerged as the suitor.

It is thought Persimmon approached Westbury two weeks ago with the suggestion of an offer of about 540p a share, but after discussions Persimmon said it was willing to raise the figure to up to 560p a share. This is 15% above Westbury鈥檚 share price last week, and equates to a total price of about 拢640m Both companies said that the approach 鈥渕ay or may not lead to an offer for Westbury鈥�.

A bid from a rival housebuilder is not expected because it would be difficult to compete with Persimmon鈥檚 firepower. Barratt, which would have the capacity, has traditionally favoured organic growth over acquisitions.

The big rises in share price showed that the City welcomed the proposed takeover, as well as the price.

However, an analyst at Dresdner Kleinwort Wasserstein demurred. He said: 鈥淎 bid for Westbury was inevitable in our view, but we believe that Persimmon is jumping too soon and arguably paying too much. The market may see this as signalling the bottom of the market. We believe the worst is to come.鈥�

Most other analysts said that it was a good union, and that the offer recognised the true value of the companies in the housing sector.

In the past, Persimmon has made acquisitions at opportune times in the cycle, so this deal is likely to be interpreted as calling the bottom of the market.

We believe that Persimmon is jumping too soon and paying too much

Dresdner Kleinwort Wasserstein analyst

The City is also impressed by the way Persimmon handled its previous acquisitions, particularly its success in making cost savings, which will help to pay the interest on the debt.

A Westbury takeover would enable Duncan Davidson, Persimmon chairman, to make his final mark on the company before he retires next April at the age of 65.

Under his leadership the company has generated impressive profits. And if the deal goes ahead, it will allow Persimmon to move in front of Barratt, which is the biggest UK housebuilder in terms of volume if not market capitalisation.

Persimmon鈥檚 entry to the FTSE 100 means that it would attract interest from new investors, such as tracker funds, which should boost its share price. This could have a knock-on effect on other housebuilders as investors become more interested in the housing sector as a whole.

Paul Pedley, deputy chairman of housebuilder Redrow, said the proposed takeover would have a positive effect on the rest of the sector, as more City analysts would take in interest in it. He said: 鈥淎ny one of the housebuilders getting into the FTSE 100 is a good thing for the industry.鈥�

Traditionally investors have been wary of housebuilders because they are seen as overly vulnerable to the business cycle. This has meant that share prices have tended to be low despite firm鈥檚 large profits.

The only two companies from the quoted construction sector have made it into the top 100 so far: materials companies Wolseley and Hanson.