UK: If Tarmac and Lafarge go through with their proposed JV tie-up in the UK, Lafarge will be obliged to sell its long-established Hope plant in Derbyshire, in the heart of the Peak District National Park, as well as its top-quality limestone quarry and rail depot connections. The Competition Commission has indicated that it would like an 'outsider' to buy the package, which also includes significant other assets in aggregates and readymix. The question is, who might be interested to buy it?
The UK is now a mature market, which has contracted significantly over the last decade, so that heady growth is not a possibility. The competition authorities will ensure that there is real competition in the UK building materials markets, so that only 'normal' margins of 5-10% can be expected - rather than inflated cartel-like or oligopolistic margins of 20% and beyond. Given that the return on capital invested is going to be quite low, why would anyone want to commit their cash (or their credit) to buying into the UK construction materials market? Why not put your money into bio-tech, or telecomms or even into a micro-development bank in the developing world?
I guess that it is largely down to a calculation of risk versus reward (as usual). The rewards of investing in a cement plant and integrated building materials business in the UK may be (relatively) low, but then the risks are also low: the UK is a fairly safe bet for long-term moderate growth, with strong population growth and robust GDP per capita.
Who would buy? A company that wants to balance its portfolio (perhaps a company with most of its eggs currently in the fast-growth/developing world basket), is cash rich (or has access to cheap credit), which is already in cement and aggregates and which might wish to carry home some of the technical knowledge from the deal might be interested. Perhaps some of the Chinese state-owned enterprises or ambitious mid-tier companies from the Middle East would be interested. As ever though, whether a deal is done depends on the price asked - and in the end, the price asked might be too high for anyone.
