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21 February 2012

Anglo American/Lafarge jv 'threatens competition'

First publishedon www.AggBusiness.com

The Competition Commission (CC) has decided provisionally that the proposed UK joint venture between Anglo American and Lafarge could damage competition in certain markets for construction materials.

The CC notes that Anglo American, through its UK subsidiary Tarmac, and Lafarge are both global companies that are active in the supply of construction materials in the UK.

The parties propose to establish a 50:50 joint venture to which each of would contribute the bulk of their construction materials businesses in the UK.

The two parties’ main overlapping activities in relation to the joint venture are in the production and supply of cement, aggregates, asphalt and ready mix concrete (RMX). Cement and aggregates are the key ingredients of RMX. As well as being used in the construction of roads and buildings, aggregates can be used in the production of asphalt and in specialist applications such as rail ballast and high purity limestone used for its chemical properties.

In a summary of its provisional findings report published today, the CC has concluded that the joint venture could lead to a substantial lessening of competition (SLC) in the markets for:

  • The supply of bulk cement;
  • The supply of rail ballast;
  • The supply of high purity limestone, when used for flue gas desulphurization (the abatement of acid gas emissions from coal-fired power stations);
  • The supply of primary aggregates for construction applications in 23 local markets;
  • The supply of asphalt in two local markets, and
  • The supply of RMX in seven local markets.


Chairman of the Anglo/Lafarge Inquiry Group, Roger Witcomb, said: “We have a number of concerns about this joint venture.

“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 coordination in the bulk cement market. But we are concerned that the proposed tie-up would increase the susceptibility of this market to coordination.

"Some of the reasons for this arise from the proposed combination of the cement businesses and some from the increased vertical integration that would result from the combination of their RMX businesses. Lafarge currently has a relatively small RMX business, while Tarmac has a relatively large one.

“The tie-up could also reduce competition for two specific aggregates products, rail ballast and high purity limestone used for flue gas desulphurisation, because of the shortage of alternative suppliers.

“This is a particularly complex investigation because of the number of different products, the varying degrees of substitutability between them, and the fact that cement is an input into RMX and aggregates are an input into both RMX and asphalt.

"In addition, for aggregates used in general construction applications markets are quite localised as a result of high transport costs compared with product value.

"The markets for asphalt and RMX are also localised, but for them the issue is perishability. We have therefore had to examine competitive conditions in a large number of local markets for these products in coming to our view on the likely effect of the proposed joint venture on competition.

“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.

“As well as the summary of provisional findings, the CC has published a notice of possible remedies, outlining ways that the potential anti-competitive effects of the joint venture could be prevented. The full provisional findings report will be published shortly.”

Comments on the provisional findings and the notice of possible remedies are invited in writing by 13 March, 2012 and 6 March 2012 respectively.

To submit evidence, email: anglolafarge@cc.gsi.gov.uk or write to:

David du Parc Braham

Inquiry Manager (Anglo/Lafarge)

Competition Commission

Victoria House

Southampton Row

London

WC1B 4AD

 

In a statement, Anglo American said: “We note today’s publication of the Competition Commission’s provisional findings, which are the next step in the process of regulatory review of the proposed 50:50 joint venture between Tarmac and Lafarge.

“We continue to work with the Competition Commission to address the issues raised in their provisional findings and continue to believe in the strategic rationale of the transaction and this exciting opportunity to create a leading UK construction materials company better placed to serve its customers.

“The proposed 50:50 joint venture will create a leading UK construction materials company with a portfolio of high quality assets, drawing on the complementary geographical distribution of operations and assets, the skills of two experienced teams and a portfolio of well-known and innovative brands.”

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