Mittal family a new player in concrete sector

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A NEW player is entering the UK concrete market after mining giant Anglo American and cement group Lafarge announced the sale of a package of UK building materials assets to the Mittal family.

The sale, for a maximum £285m, was a condition set by the Competition Commission to allow the firms to combine their building materials operations under a joint venture.

Mittal Investments, Indian steel tycoon Lakshmi Mittal’s private investment vehicle, will pay £272m in cash, which includes a deferred consideration of £30m depending on the assets’ performance over the next three years.

This allows Lafarge and Tarmac-owner Anglo to clear a vital hurdle to establish a joint venture which will combine cement, aggregates, ready-mixed concrete, asphalt, maintenance and waste services.

The sale includes five aggregates quarries and 172 ready-mixed concrete sites across the UK, including a number in Yorkshire. It also includes the Hope cement plant in Derbyshire, and Tarmac’s 50 per cent stake in Midland Quarry Products, one of the UK’s main suppliers of hard rock and asphalt.

“The sale of these assets is the principal condition to receiving final clearance from the Competition Commission for the formation of a 50:50 joint venture,” said the companies.

“Once established, it will create a new, leading UK construction materials company, with a portfolio of high quality assets, drawing on the complementary geographical distribution of operations, the skills of two experienced management teams, and a portfolio of well-recognised, innovative brands.

“The transaction announced today is a major step towards finalising this joint venture.”

The joint venture is expected to complete early next year.

The sale will also free up about £13m of working capital, which will not transfer with the assets, and will instead be released as working capital to the joint venture. About 800 staff will transfer across in the sale.

The Competition Commission started looking at the joint venture in 2010, after the tie-up was challenged by the Office of Fair Trading.

The UK cement market is dominated by Lafarge, Tarmac, Cemex and HeidelbergCement’s Hanson.

The deal will see Lafarge sell 14 concrete plants in Yorkshire, including sites in Barnsley, Hull and Leeds. Anglo American has agreed to divest 13 sites in Yorkshire, with locations including Keighley, Sheffield and York.

Lafarge said it would receive about 160m euros (£128m) from the sale of its British assets. It plans to use the proceeds to cut debt.

Lafarge added that including this deal, it has raised nearly 650m euros from asset sales this year, versus a target of at least £1bn euros.

Mr Mittal is behind the ArcelorMittal steel group, which has a major base in Sheffield at the Vulcan Works.

Analysts said the deal could be a positive as investors raise concerns over a possible rights issue at debt-burdened ArcelorMillar, the world’s biggest steel-maker.

“Spending £450m on construction material assets now does not necessarily sound like someone who is thinking about imminently piling in a few billion dollars into his steel business as part of an equity raise,” said analysts at Nomura.

In May, the Competition Commission ordered the joint venture to sell assets to get approval.

It said the without disposals, the joint venture could lead to a “substantial lessening of competition” in the supply of bulk cement, rail ballast and high purity limestone.

The Competition Commission also warned of an impact on some local markets for construction aggregates, asphalt and ready-mixed concrete.

At the time, 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 coordination 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 localised, as well as for two specialist aggregates products – rail ballast and high-purity limestone used for flue gas desulphurisation in coal-fired power stations.”

The Competition Commission declined to comment yesterday.

john.collingridge@ypn.co.uk