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Lafarge and Anglo American venture raises competition concerns

World Cement,

The Competition Commission (CC) has raised concerns that a joint venture between Lafarge and Anglo American could damage competition in the UK construction markets.

The two companies announced their plans to form a 50:50 joint venture in February 2011. The proposal was to combine Lafarge Cement UK, Lafarge Aggregates and Concrete UK with Anglo American’s Tarmac UK Ltd. The companies plan to combine the bulk of their UK based construction materials operations in order to become the market leader in the production and supply of cement, aggregates, asphalt and ready mix concrete. The combined sales of these two businesses reached £1.8 billion in 2010, whilst the venture is expected to save around £60 million in costs pa. The two companies have been operating independently since the agreement as they await regulatory approval.

At the time of announcing the venture, Cynthia Carroll, Chief Executive of Anglo American, said: “We are excited to be bringing together two high quality and complementary UK businesses to create a compelling new industry proposition through which we expect to unlock significant value. While Anglo American’s objective remains to divest its interests in the joint venture over time, this transaction positions us well to maximise value.”

The CC, which is already investigating fair competition practices in the UK market for the supply of aggregates, cement and ready-mix concrete, has been investigating the proposed venture after the case was referred to it by the Office of Fair Trading in September 2011. Provisional findings have found that the venture could threaten competition within local markets for the supply of bulk cement, limestone, asphalt, ready mix concrete and primary aggregates.

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.”Bottom of Form

The CC has also published possible remedies to the situation and is currently consulting with Lafarge and Anglo American.

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