British homebuilder Crest Nicholson said on Wednesday it may recommend to its shareholders a sweetened 701.4 million pound ($897.3 million) all-share takeover deal from bigger rival Bellway if the latter comes up with a firm offer.

Under the terms of the latest proposal, Crest Nicholson's shareholders will get 0.099 Bellway shares for each Crest share they own and a dividend of 4 pence per share.

The proposal made on July 3 implies a value of 273 pence per share and is Bellway's third over the last four months. Its last proposal was worth 253 pence.

If the deal goes through, the combined group will be worth around 4 billion pounds, joining the likes of FTSE 100 heavyweights Barratt, Berkeley, Vistry, Taylor Wimpey and Persimmon in terms of market capitalisation.

Shares in Crest Nicholson were up about 3% as of 0842 GMT, while Bellway was down 1.6%.

The companies pointed to the "compelling strategic and financial rationale" for the combination in a statement, adding it would reinforce Bellway's position in the sector and enable Crest Nicholson shareholders to benefit from the scale of the combined business.

Last week, Crest said it would not enter talks on a merger proposal from Avant Homes as the London-listed firm was in an offer period following Bellway's bid last month. Crest had then said that the Avant proposals did not involve a possible takeover offer by the privately held group.

The Bellway-Crest negotiations underscore consolidation efforts in the British homebuilding sector as a shortage of properties drives up the cost of owning or renting a home.

In February, Britain's biggest homebuilder Barratt agreed to buy Redrow in an all-stock deal, while Vistry bought Countryside in 2022. ($1 = 0.7817 pounds) (Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Savio D'Souza and Bernadette Baum)