Lafarge/Anglo tie-up could damage competition

21 February 2012

The UK Competition Commission has made a provisional decision against a proposed joint venture between the UK arm of Lafarge and Anglo American subsidiary Tarmac UK, claiming it could damage competition in the UK construction materials market.

The Commission has proposed three possible solutions to the competition issue - prohibiting the joint venture entirely, prohibiting some aspects of the transaction, or requiring some operations to be sold as a condition for allowing the joint venture to proceed.

The second option could see Lafarge and Anglo permitted to combine their operations in some markets but retain separate ownership of operations in other sectors. The Commission also said a combination of options two and three could be viable.

The provisional decision comes after the UK Office of Fair Trading (OFT) referred the proposed partnership to the Commission last September. The 50:50 joint venture would see Lafarge Cement UK and Lafarge Aggregates & Concrete UK pool their resources with Tarmac, which owns 118 quarries, 69 asphalt plants and 180 ready-mixed concrete sites.

Market co-ordination fears

Commission chairman of the Anglo/Lafarge inquiry Roger Witcomb said the regulator had a number of concerns, not least that the proposed tie-up would increase the susceptibility of the UK bulk cement market to co-ordination.

"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. We have not reached a view on whether or not there has been co-ordination in the bulk cement market."

Mr Witcomb said the investigation was particularly complex due to the number of different products involved and the fact that cement is an input into ready-mixed concrete, while aggregates are an input into both ready-mixed concrete and asphalt.

"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," Mr Witcomb said.

The Commission has invited comments and suggested remedies to its provisional findings to be submitted in writing by 13 March and 6 March respectively.