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News » Product » Lafarge-Tarmac ruling heralds shake-up for aggregates sector » published 14/05/2012

Lafarge-Tarmac ruling heralds shake-up for aggregates sector

The Competition Commission ruling on the proposed Lafarge-Tarmac merger may result in a new player breaking into the traditional 'big five' of the UK aggregates market.

For the first time in more than a decade, there could be a significant shake-up in the structure of the UK aggregates sector.

Historically, the industry has been dominated by five big players, the names of whom change frequently, and currently are: Aggregate Industries; Tarmac (owned by Anglo American); Cemex (formerly RMC); Lafarge; and Hanson (owned by Heidelberg).

The proposed merger of Anglo American and Lafarge will change this in two ways: the five will become four; and because of a Competition Commission ruling this month (see box), many assets and operations owned by the pair will be disposed of, opening the door to other players in the market.

So is there the possibility of another player stepping up, and getting a seat at the top table?

The likeliest candidate is Breedon Aggregates (see factfile box).

The Leicestershire-based outfit has already positioned itself to make further acquisitions, with a share placing aiming to raise around £15m of funding. Since 2010, it has made two bolt-on acquisitions - C&G Concrete and Nottingham Readymix - for a total of £11.7m.

After the Competition Commission ruling this month, Breedon Aggregates issued a statement saying: "Breedon has in the past indicated its interest in any assets which may become available through this divestiture programme, in line with its stated strategy of consolidating the heavy-side of the UK building materials industry.

“The company will assess any specific opportunities once further details on the proposed disposals have been made available."

Breedon's geographic scope is relatively narrow, and many of the assets which Tarmac and Lafarge dispose of will have little conflict with its existing operations.

The firm currently operates across the Midlands, Scotland, and – following the CMG acquisition – into East Anglia. That leaves plenty of other areas to move into.

In terms of product, the CC had demanded that Tarmac and Lafarge divest of a broad range of businesses. But the sector it is most concerned about is cement – where it wants more competition.

The chairman of the Commissions’s Anglo/Lafarge inquiry group, Roger Witcomb, says: “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.”

When contacted by TCI, Breedon was tight-lipped about its views on the looming Tarmac-Lafarge disposals.

“We can't say any more about what elements of the Tarmac/Lafarge businesses we'll be interested in,” said a spokesman, “but we remain ambitious in the UK market.”

But does the firm see this as once-in-a-generation growth opportunity?

“We have no absolute ambition to be in the top five,” the spokesman says. “We are not looking for size for size's sake.

“Breedon is the lowest cost producer in the UK, with high levels of service. We are effectively a series of local businesses, and we work really hard to keep our customers happy in a 25 mile radius around those businesses.

“There are 250 or so privately owned aggregates business in the UK, and our business model is such that we can easily bolt on those types of company when we are looking for further acquistions.”

With the UK aggregates market shrinking, it may not seem a sensible time for acquisitions. But Breedon doesn't think so. “Even if the construction market is shrinking, we have calibrated our business accordingly – we don't need a growing market for our business plan,” the spokesman says.

MPU

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This article was published on 14/05/2012 (last updated on 15/05/2012).

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