Proposed construction joint venture must sell cement and other operations to gain competition approval

Some of the assets would ideally go to a single buyer, so "paving the way for a new competitor into the UK cement market", the CC said in its final report (148-page / 1MB PDF). The CC provisionally ruled in February that the deal between global construction companies Lafarge and Anglo American could "damage competition" in the construction materials market, particularly in relation to bulk cement.

"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," said Roger Witcomb, who chaired the CC's inquiry. "The range and size of this remedies package is a consequence of the range and size of the proposed joint venture."

Although granting  conditional approval for the joint venture, the final report reiterated the CC's concerns that without action it could increase the risk of  co-ordinated effects in the market for bulk cement and reduce competition in local and national markets for other products including aggregates, asphalt and ready-mix concrete (RMX).

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

The proposed joint venture was first notified to the Office of Fair Trading (OFT) on 16 May 2011, following a referral back from the European Commission. The OFT subsequently referred to the transaction to the Competition Commission on 2 September 2011 for further investigation.The package to be sold off by the companies includes a "substantial network" of RMX plants, representing well over half of the companies' combined RMX capacity; a cement plant and nearby quarry in Derbyshire and three linked rail depots; six aggregate quarries and Tarmac's share of two quarries owned through another joint venture; and two asphalt plants as well as Tarmac's share of five plants owned through its other joint venture. The precise details of how these assets will be packaged and sold are yet to be finalised, but the majority of asset sales  will need to be agreed or completed before the joint venture can go ahead.

"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," Witcomb explained. "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."

He added that the CC's investigation had been a particularly complex one due to the number of products involved in over 250 geographic areas, as well as the links between those products.

"We believe that these extensive sales will help protect all customers' interests in these key markets, which is particularly important when one considers how much construction work is funded by the public purse," he added.

Both companies welcomed the report, but stressed that there would be no change to their operations until the sale of the specified sites had been agreed and the joint venture legally completed.

"Today's Final Report will enable Anglo American/Tarmac and Lafarge to establish a leading UK construction materials company, with high quality assets in key geographical locations throughout the UK, teams with a vast amount of experience and skills in the industry and a portfolio of well-recognised and innovative brands," Tarmac said in a statement.