Joint venture between large construction companies could damage competition in materials market

In a provisional report (23-page / 91KB PDF), the CC said that a proposed partnership between global construction companies Anglo American and Lafarge raised "a number of concerns", particularly in relation to the market for bulk cement.

The CC will issue a report indicating whether it will block the joint venture or require some of the companies' assets to be sold or excluded from the deal by 1 May 2012.

The two companies announced plans to combine their UK construction materials businesses in a joint venture equally owned by Lafarge and Anglo American's UK subsidiary Tarmac Ltd in February 2011.

Consumer regulator the Office of Fair Trading (OFT) can refer completed or proposed mergers to the CC where these create or enhance a 25% share of supply in a substantial part of the UK, or where the annual UK turnover of the company being acquired is over £70 million.

Both Tarmac and Lafarge produce and supply cement, aggregates, asphalt and ready mix concrete (RMX), the CC said. RMX is made up of cement, aggregates and other materials, while aggregates can also be used to produce asphalt, rail ballast and high purity limestone as well as in other construction applications.

The regulator concluded that the arrangement could lead to a substantial lessening of competition in the markets for the supply of bulk cement, rail ballast and high purity limestone. It would also likely affect the supply of primary aggregates to be used in construction in 23 local, regional or national 'markets', the supply of asphalt in two and the supply of RMX in seven.

Robert Witcomb, chairman of the inquiry group that has been examining the proposed joint venture, said that there was evidence that the bulk cement market in the UK, in which there are currently only four producers, was "not as competitive as it could be".

"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. 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," he said.

He added that the regulator's investigation had been "particularly complex" due to the number of different products involved and their different uses. In addition, as it can be quite costly to transport aggregates used for general construction purposes there is rarely much supplier competition locally.

"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," he said.

The CC would now consult on the possible actions it could take in response to the issues raised in its report, "bearing in mind the close links that exist between the different product markets", he said.

Anglo American said that the two companies were continuing to work with the CC to address its concerns, but added that the proposed joint venture would create "a leading UK construction materials company with a portfolio of high quality assets".