Anglo/Lafarge joint venture threatens competition

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Competition Commission decides provisionally that proposed UK joint venture could damage competition

THE Competition Commission has decided provisionally that the proposed UK joint venture between Anglo American plc and Lafarge SA could damage competition in certain markets for construction materials.

In February 2011, Anglo American, through their UK subsidiary Tarmac Ltd, and Lafarge announced a proposal to establish a 50:50 joint venture, to which each of them would contribute the bulk of their construction materials businesses in the UK.

The two parties’ main overlapping activities in relation to the joint venture are in the production and supply of cement, aggregates, asphalt and ready-mixed concrete. The Office of Fair Trading referred the case to the Competition Commission on 2 September 2011.

In a summary of its provisional findings report published today, the Competition Commission has concluded that the joint venture could lead to a substantial lessening of competition in the markets for the supply of:

• bulk cement;
• rail ballast;
• high-purity limestone, when used for flue-gas desulphurization;
• primary aggregates for construction applications in 23 local markets;
• asphalt in two local markets; and
• ready-mixed concrete in seven local markets.

‘We have a number of concerns about this joint venture,’ said Roger Witcomb, chairman of the Anglo/Lafarge Inquiry Group.

‘In bulk cement there are currently only four UK producers, and there is evidence that the market is not as competitive as it could be. Prices and profit margins haven’t been affected in the way we would have expected following the big falls in the demand for cement in the past few years.’

Although the Commission has not reached a view on whether or not there has been co-ordination in the bulk cement market, Mr Witcomb said there were concerns that the proposed tie-up would increase the susceptibility of this market to co-ordination.

‘Some of the reasons for this arise from the proposed combination of the cement businesses and some from the increased vertical integration that would result from the combination of their ready-mixed concrete businesses,’ he said. ‘Lafarge currently have a relatively small ready-mixed concrete business, while Tarmac have a relatively large one.’

Mr Witcomb added that the tie-up could also reduce competition for two specific aggregates products – rail ballast and high-purity limestone used for flue-gas desulphurization – because of the lack of alternative suppliers.

‘This is a particularly complex investigation because of the number of different products, the varying degrees of substitutability between them, and the fact that cement is an input into ready-mixed concrete and aggregates are an input into both ready-mixed concrete and asphalt,’ said Mr Witcomb.

‘In addition, for aggregates used in general construction applications, markets are quite localized as a result of high transport costs compared with product value. The markets for asphalt and ready-mixed concrete are also localized, but for them the issue is perishability. We have therefore had to examine competitive conditions in a large number of local markets for these products in coming to our view on the likely effect of the proposed joint venture on competition.’

Mr Witcomb continued: ‘We are now consulting on the possible actions we could take in response to the reductions in competition we have found, bearing in mind the close links that exist between the different product markets.’

As well as the summary of provisional findings, the Competition Commission has published a notice of possible remedies, outlining ways that the potential anti-competitive effects of the joint venture could be prevented (see attached PDF document).

The Commission says its full provisional findings report will be published shortly, and its final report will be published no later than 1 May 2012.

Comments on the provisional findings and the notice of possible remedies are invited in writing by 13 March 2012 and 6 March 2012 respectively. To submit evidence, email: anglolafarge@cc.gsi.gov.uk; or write to: David du Parc Braham, Inquiry Manager (Anglo/Lafarge), Competition Commission, Victoria House, Southampton Row, London WC1B 4AD.