Galliford Try said that a deal to offload its Linden Homes and Partnerships & Regeneration operation would put the business on a fresh footing as a well-capitalised standalone £1.5bn turnover contractor.

Bovis Homes said that if a deal goes through it would value the merged housing businesses at over £1bn and create a major player in the housing sector.

Under the proposed offer, Galliford Try would receive £300m is cash with shareholders also given a 29% stake in Bovis, worth around £675m.

Galliford Try’s 10-year debt private placement of £100m would also transfer to Bovis Homes, as well as its pension schemes.

The proposal comes just over two years after full merger talks between the two group failed. Then Galliford tried to buy its larger rival but was turned down.

Galliford Try chief executive Graham Prothero, said: “The transaction is an exciting opportunity to create two strategically focused businesses.

“The significant cash element within the consideration provides a firm foundation for our newly reorganised Construction business to flourish as an independent company.

The strong balance sheet and excellent fit between the combining businesses will be a superb platform for both private housebuilding and partnerships, creating a unique and well-positioned housing provider.

Greg Fitzgerald, chief executive of Bovis Homes and former Galliford Try chairman, said: “While discussions are still at early stages, this potential combination represents an exciting and transformational opportunity to create a leading UK housebuilder with enhanced scale.”

“Galliford Try’s Partnerships business is a fantastic brand, with a very strong position in the UK.

“Combining it with Bovis Homes’ newly launched Partnerships Housing Division would enable us to become the partner of choice for delivering more affordable homes at a time when these are needed the most.

“Based on my familiarity with the businesses and the compelling strategic rationale, I think this is a massive opportunity and as a substantial shareholder of Bovis Homes, my intention is to subscribe to the placing if the transaction proceeds.”