UK Demands Anglo American, Lafarge JV Asset Disposals

05/01/2012| 11:27am US/Eastern

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-- UK Competition Commission wants a large portion of assets sold to a single buyer to boost competition in UK bulk cement market

-- Anglo American and Lafarge both "confident" the conditions can be met

-- Citigroup says the assets earmarked for sale could be worth GBP300M-GBP350M

-- Breendon Aggregates says it will look at the assets, CRH PLC declines to comment

(Adds Anglo American comments and more background.)

By Alex MacDonald

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The U.K.'s Competition Commission said Tuesday that Anglo American PLC (>> Anglo American plc) and Lafarge SA (>> LAFARGE) will have to sell a significant number of assets in order to get approval for their proposed construction materials joint venture.

The ruling paves the way for the mining titan and the French construction company to pursue a deal that was announced more than a year ago but that faced tough regulatory scrutiny due to competition concerns regarding the reduction in U.K. cement makers from four to three, among other things.

The deal fits with Anglo American's plans to exit from its remaining U.K. Tarmac construction materials business and focus on its core mining activities. It also fits with Lafarge's strategy to pay down debt through asset sales.

The commission determined Tuesday that the two companies would have to sell a series of assets including one cement plant, three rail depots, six aggregate quarries, over half of its ready-mix concrete production capacity and a series of asphalt activities in order to placate concerns about reduced competition in local and national construction material markets.

"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," said Roger Witcomb, the chairman of the Commission's inquiry group reviewing the deal.

The commission said that a large portion of the assets, including one of the U.K.'s biggest cement plants in Hope, Derbyshire, will need to be sold to a single buyer that isn't a U.K. cement player in order for the deal to be approved.

"A large-scale disposal like this is the only way to get a new entrant of sufficient scale to break into the U.K. cement market and thereby ensure that this joint venture does not damage competition," Witcomb added.

Citigroup said there would be a limited number of buyers for the assets given the commission's conditions for approving the deal. It said that potential buyers could include Ireland-based construction materials company CRH PLC (CRH), which owns similar assets elsewhere in Europe, or U.K.-listed Breedon Aggregates Ltd. (>> Breedon Aggregates Ltd) which has been trying to expand its asset base for a while.

Citigroup valued the assets earmarked for disposal at around GBP300 million to GBP350 million.

Breedon responded Tuesday by saying it "will assess any specific opportunities once further details on the proposed disposals have been made available." The company had in the past indicated its interest in consolidating the heavyside end of the U.K. building materials industry.

A CRH spokeswoman declined to comment on the matter.

Anglo American and Lafarge initially unveiled their joint venture proposal in February 2011. The proposal aimed to create a U.K. construction materials champion with a combined GBP1.8 billion in sales and GBP210 million in earnings before interest, taxes, depreciation and amortization as of 2010.

Lafarge said the deal still made sense in its smaller form due to recurring synergies through increased operational efficiencies, improved logistics and value-added products. Both Lafarge and Anglo American said they were committed to meeting the conditions placed upon the joint venture approval.

At 1430 GMT, Anglo American's shares were up 1.9%, or 44 pence at 2,412p. Lafarge's shares weren't trading due to a national holiday in France and Breedon's shares were up 14% or 3 pence at 24.25p.

-By Alex MacDonald, Dow Jones Newswires; +44 (0)7776 200 924 alex.macdonald@dowjones.com

(Tapan Panchal and Mark Shapland in London contributed to this story.)

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