Anglo shifts unloved Tarmac UK into Lafarge venture
PARIS/LONDON (Reuters) - Mining group Anglo American Plc (AAL.L) is to hive off its unwanted Tarmac UK construction materials business into a joint venture with French cement maker Lafarge SA (LAFP.PA) after failing to make an outright sale.
Having struggled for more than three years to find a buyer for the unit, which it bought as part of the larger Tarmac group in 2000, Anglo said on Friday it has agreed to merge Tarmac UK with Lafarge's own UK cement, aggregates, concrete and asphalt businesses in a 50:50 joint venture.
"While Anglo American's objective remains to divest its interests in the joint venture over time, this transaction positions us well to maximise value," Chief Executive Cynthia Carroll said in a joint statement with Lafarge.
The deal comes as Carroll seeks to slim down the diversified miner and cut its debt through a restructuring which analysts see as being designed to get it fit to fight any new renewed bid attempt by last year's spurned suitor Xstrata Plc XTA.L.
Asked why Anglo had opted for a joint venture rather than pursuing an outright sale, Carroll said market conditions in the UK were still "very challenging ... a sale of the business would have required waiting for this cycle to recover which could take some time."
Nevertheless there was some disappointment that Anglo had failed to sell the business outright and its shares were down by 2.4 percent by 1245 GMT, despite it reporting stronger than expected earnings.
"I don't think the Tarmac joint venture was quite the exit everyone was hoping for," Tom Gidley-Kitchin, an analyst at brokerage Charles Stanley, said.
Analysts also said the Tarmac UK-Lafarge combination, which last year would have had sales of 1.8 billion pounds ($2.9 billion) and core earnings of 210 million, could face competition concerns and regulators could force disposals.
The two companies did not reveal whether there was an agreement for either party to buy each other out, or whether there was a plan to eventually float the joint venture.
"Our immediate target is to get involved and to make this JV a success. If Anglo American sells (its stake), we will see. But for now, I don't think this is a short term issue," Lafarge's chairman and chief executive, Bruno Lafont, told a press briefing.
The companies said the combination, which brings together Lafarge's 2,800 UK employees and Tarmac's 4,500, will generate recurring synergies of at least 60 million pounds a year.
"For Lafarge, this deal is cash neutral, is accretive to Lafarge shareholders and illustrates our strong commitment to the UK market," Lafont said.
"We generally believe that putting them together creates a more balanced business to manage the current challenging environment," Carroll added.
Anglo, which was advised by Goldman Sachs and UBS on the deal, is contributing 1.63 billion pounds of gross assets including 118 quarries, 180 ready-mixed concrete sites and 69 asphalt plants.
"The two businesses complement each other quite well, as Tarmac is long aggregates and quarries and short facilities and Lafarge is long facilities," Sanford Bernstein said in a note.
The value of the Lafarge assets, which include five cement plants, a network of depots, 38 aggregates quarries and ready-mixed concrete plants, was not disclosed. Lafarge's gypsum activities in the UK are not included in the combination.
Anglo said there would be virtually no job losses as a result of forming the joint venture, which is subject to regulatory approvals.
"We believe that the competition authorities may insist upon some disposals, as the two groups own a number of assets in the same areas and approval may take some time," Sanford Bernstein said.
The move came as Lafarge halved its dividend as part of an ambitious plan to reduce debt. Shares in Lafarge responded with a 4.1 percent rise by 1220 GMT, making the stock the top European bluechip gainer.
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