Merger Update

The OFT today referred the proposed UK construction materials joint venture between Anglo American PLC (Anglo American) and Lafarge S.A. (Lafarge) to the Competition Commission for further investigation.

Anglo American, through its UK subsidiary, Tarmac Limited (Tarmac), and Lafarge are both global firms that are active in the supply of construction materials in the UK. The parties propose to establish a 50:50 joint venture to which each of them would contribute the bulk of their construction materials businesses in the UK.

The proposed joint venture involves overlaps between the parties' activities in a number of product markets, at local, regional and national level. In addition, vertical supply relationships arise between the parties' activities, which may impact on the ability of suppliers in certain markets to compete.

The parties provided a significant quantity of information and analysis to the OFT to inform its review. The OFT also received information from around 300 customers and competitors of the two parties as part of its merger investigation.

The OFT has concluded that competition concerns arise in a number of markets that justify a reference of the proposed joint venture to the Competition Commission. These are:

·; overlaps in the supply of aggregates, asphalt and ready-mixed concrete in a large number of local areas (as well as particular types of aggregates at regional and national level);

·; an overlap in the supply of bulk grey cement at a regional and/or national level, as well as, separately, an increased prospect of coordination in the supply of bulk grey cement; and

·; a concern that the joint venture could foreclose independent ready-mix concrete suppliers by making it substantially more difficult for them to source bulk grey cement at competitive prices.

Ali Nikpay, OFT Senior Director and Decision Maker in this case, said:

'The proposed joint venture would bring together Tarmac's and Lafarge's construction material assets in the UK. This represents a significant structural change in this sector and raises serious competition issues in several markets which need to be considered in detail by the Competition Commission.

'Although the parties did offer to divest a variety of assets in order to try to resolve the issues identified, we are not confident that the package proposed would clearly remove our concerns in all areas.'

NOTES

1. On 5 April 2011 the parties submitted a request to the European Commission that the Anglo American/Lafarge joint venture be referred back to the UK competition authorities for review under the Enterprise Act 2002 pursuant to Article 4(4) of the Council Regulation 139/2004 (the EUMR). This sets out that mergers, including joint ventures, that initially fall within the jurisdiction of the EUMR may, in some circumstances, following a request by the parties, be referred to the UK to be examined by the OFT under the Enterprise Act 2002. On 16 May 2011 the European Commission adopted its decision to refer in its entirety the proposed joint venture to the OFT pursuant to Article 4(4) of the EUMR.

2. The reference test - Under the Enterprise Act 2002, the OFT has a duty to make a reference to the Competition Commission if it believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation, and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

3. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.

4. The Competition Commission is expected to report by 16 February 2012. The Competition Commission may extend the 24-week period within which it is required to publish its report by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.

5. On 16 August 2011, the OFT published its market study into aggregates, cement and ready-mix concrete, proposing to refer the sectors to the Competition Commission for more detailed investigation. See OFT proposes Competition Commission investigation of aggregates, cement and ready-mix concrete markets.

6. The text of this decision will be placed on this web site as soon as is reasonably practicable.

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