Tarmac/Lafarge JV disposals announced

Competition Commission approves proposed UK joint venture subject to a number of conditions

THE Competition Commission has announced today that it will require Anglo American plc and Lafarge SA to sell a significant portfolio of operations, paving the way for entry by a new competitor into the UK cement market, before their proposed construction materials joint venture can go ahead.

In February 2012, the Commission provisionally ruled that the joint venture between Anglo American and Lafarge could damage competition in certain markets for construction materials.

In its final report published today, the Commission has reiterated its concern that the joint venture would increase the danger of co-ordination in the market for bulk cement and would reduce competition in local and national markets for other products including aggregates, asphalt and ready-mixed concrete.

To address these concerns, Anglo American (operating in the UK through Tarmac Ltd) and Lafarge will now be required to sell an extensive package of operations including:

• Hope cement plant, in Derbyshire, as well as nearby Dowlow Quarry and three linked rail depots;
• a substantial network of ready-mixed concrete plants, representing well over half of the proposed joint venture’s ready-mixed concrete capacity;
• six aggregate quarries as well as Tarmac’s share of two quarries owned through their Midlands Quarry Products (MQP) joint venture with Hanson, and one rail depot; and
• two asphalt plants as well as Tarmac’s share of five plants owned through MQP.

The precise details of how the assets will be sold and packaged will be finalized after publication of the final report, but it is envisaged that the Hope plant and supporting operations, including Dowlow Quarry and a substantial network of ready-mixed concrete plants, will go to a single buyer. This sale will have to be completed before the joint venture can go ahead.

Roger Witcomb, chairman of the Anglo/Lafarge Inquiry Group, said: ‘A large-scale disposal like this is the only way to get a new entrant of sufficient scale to break into the UK cement market and thereby ensure that this joint venture does not damage competition.

‘In bulk cement, there are currently only four UK producers and there is evidence that competition is not as effective as it could be. So, if the joint venture is to go ahead, it is essential to maintain the number of cement producers by bringing in a new player through the sale of the Hope cement plant – one of the largest in the country.

‘The combination of the two parties’ ready-mixed concrete businesses, as originally proposed, would have played a significant role in increasing the potential for co-ordination in the cement market. The sales will address that issue as well.

‘The disposals will also remedy the loss of competition for the supply of ready-mixed concrete, aggregates and asphalt in particular areas of the country, given that the markets for these materials are quite localized, as well as for two specialist aggregates products – rail ballast and high-purity limestone used for flue-gas desulphurization in coal-fired power stations.

Mr Witcomb added that the range and size of the remedies package was a consequence of the range and size of the proposed joint venture. ‘Our investigation covered seven major products in more than 250 geographic areas,’ he said, adding that the complexity was increased by the links between the products.

‘We believe that these extensive sales will help protect all customers’ interests in these key markets, which is particularly important considering how much construction work is funded by the public purse.’

Commenting on the announcement, a spokesperson for Anglo American said: ‘We welcome the Competition Commission’s decision to approve the proposed UK joint venture between Tarmac and Lafarge. The approval is subject to a number of conditions which we are confident the parties can meet.

‘The strategic rationale for the joint venture remains clear and this offers an exciting opportunity to develop a leading UK construction materials company. We look forward to working with the regulators on the effective implementation of the undertakings and the conclusion of the joint venture as soon as practicable.’