Competition issues could be key to Tarmac acquisition

AS the major supplier of aggregates, asphalt, ready-mixed concrete and other products in the UK, interest in Tarmac is expected to be considerable following Anglo American’s decision to sell its heavy building materials subsidiary.

For the other four leading international building materials companies operating in the UK, one of the key factors in any possible acquisition move is likely to be the extent of asset disposals that would be required to meet the Government’s competition requirements.

According to marketing consultancy BDS Marketing (BDS), Tarmac are estimated to have a share of over 20% in the aggregates, asphalt, ready-mixed concrete and mortar markets. Only in cement and building blocks do the company have a lower percentage share of the market.

Hanson, who themselves have recently been acquired by HeidelbergCement, are Tarmac’s largest competitor in the UK, but it is thought that too many competition issues would arise if they were to make a bid for Tarmac. Hanson could, however, be interested in purchasing asset disposals following the acquisition of Tarmac by another company.

BDS say both CEMEX and Aggregate Industries also face competition issues but not to the same extent as Hanson. Aggregate Industries and Tarmac are the two largest asphalt companies and therefore a number of coating plants would have to be sold in the South East, North West and Scotland. Both companies are also particularly strong in aggregates in the East Midlands and Scotland.

A combination of CEMEX and Tarmac would give a different competitive situation. A number of ready-mixed concrete plants would have to be sold off, while in aggregates the main competition issues would be sand and gravel in the South East and Scotland, and crushed rock in Wales and the Midlands.

Of the leading players, this just leaves Lafarge, who are known to be keen to expand and have reportedly expressed an interest in acquiring Tarmac. BDS believe there are less competition issues between Tarmac and Lafarge – the main areas where some operations would have to be sold being in the East Midlands and Yorkshire.

However, the competition issues facing the four main existing UK suppliers, together with Tarmac’s leading share in most of the company’s markets, is also expected make the business attractive to companies who are not currently represented in the UK. According to BDS, these are likely include overseas cement and road contracting businesses, as well as private equity firms.

Anglo American have stated that they expect the sale to be completed by the first half of 2008.