Bloomberg News

Lafarge, Anglo American Venture May Threaten Competition

February 22, 2012

(Updates with analyst in third paragraph.)

Feb. 21 (Bloomberg) -- Anglo American Plc and Lafarge SA’s proposed $2.8 billion U.K. joint venture could damage competition in the market for cement and other construction materials, the country’s Competition Commission said.

The venture could reduce competition for the supply of bulk cement, rail ballast and high-purity limestone for emissions abatement from coal-fired power stations, the commission said today in a statement on provisional findings.

The U.K. agency probably will block the merger and may find “cartel-like behaviour” in the industry, said Ian Osburn, an analyst at ING. “Regulator action remains a risk and a limit on margin growth in the sector.”

The creation of the 50-50 venture, intended to help the companies withstand a decline in Britain’s construction industry, would create a business with 1.8 billion pounds ($2.8 billion) in sales and annual cost savings of at least 60 million pounds, they said in a joint statement in February 2011.

“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,” Roger Witcomb, chairman of the commission’s Anglo-Lafarge inquiry group, said in the statement.

The two companies are “confident” they can address the antitrust concerns, Paris-based Lafarge said today. Anglo American, based in London, said it’s working with the commission and continues to “believe in the strategic rationale of the transaction.”

Aggregates, Asphalt

The antitrust agency said it’s also concerned about the venture’s potential effect on the supply of construction aggregates in 23 local markets, and asphalt in two markets.

Lafarge Chief Executive Officer Bruno Lafont plans to sell more than 1 billion euros ($1.3 billion) of assets this year and deepen cost cuts amid higher raw material prices as he seeks to repair a credit rating that has fallen below investment grade. Cement demand in the U.K. may drop as much as 5 percent this year because of austerity measures and slowing economic growth, Lafarge predicted on Feb. 17.

Lafarge shares fell 0.9 percent to 35.16 euros at 4:42 p.m. in Paris. Anglo American’s stock was up 1.8 percent in London.

“We are now consulting on the possible actions we could take in response to the reductions in competition we have found, bearing in mind the close links that exist between the different product markets,” Witcomb said. The commission invited comments on possible remedies by March 6, and on its provisional findings by March 13.

Absorbing Tarmac

The venture is intended to absorb Anglo’s Tarmac unit in the U.K. as the miner of copper and iron ore exits the materials business, the company said last year.

The U.K.’s Office of Free Trading referred the case to the commission in September, and a final report is due by May 1.

The British Aggregates Association trade group has said the U.K. market is dominated by London-based Anglo American, Germany’s HeidelbergCement AG, Switzerland’s Holcim Ltd., Paris- based Lafarge and Mexico’s Cemex SAB.

--Editors: David Risser, Benedikt Kammel

To contact the reporters on this story: John Viljoen at jviljoen@bloomberg.net; Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.

To contact the editor responsible for this story: David Risser at drisser@bloomberg.net


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