Building arm dismantled for disposal by Tarmac

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The Independent Online
BRITAIN'S second largest home builder is not just being sold, it is being dismantled. Tarmac, the engineering and construction company, revealed this weekend that it will subdivide its house-building division into 16 parts and sell them off piecemeal.

"Emotionally I would like to see the business held together, but realistically it will be sold in bits and pieces," said Neville Simms, Tarmac's chief executive. He admitted, however, that Tarmac might get stuck with a rump of unsellable companies in the building division.

Selling the division as a block would have left a rival for Wimpey - which overtook Tarmac as the country's biggest home builder last year - but a carve-up will leave it a clear field.

The plan explains Tarmac's confidence in its ability to rid itself of the profitable but capital-intensive business for up to pounds 400m, despite criticism from industry observers who said no rivals were big enough to swallow the division.

Pundits considered a management buyout the most likely disposal, with a flotation a remote possibility considering the weakness of the sector.

But Mr Simms said regional builders, as well as at least one financial institution, were already queuing to view the 16 limited companies up for sale. But he cautioned: "It would not be true to say we have a buyer lined up."

Potential purchasers will have to wait at least three months while a prospectus is drawn up. The document will have a separate section for each firm on offer.

Most of the subsidiaries - all based in England except for the one in Paisley, near Glasgow - specialise in four-bedroom detached homes. A dozen of them are called Tarmac or McLean, while the others are Rivermead, Thameswey, Midland & General and starter-home builder Gotheridge and Sanders.

Tarmac's house-building division has been performing close to the average for the industry, which is down 15 per cent in volume from the mid-1980s and almost 40 per cent from the peak of the boom. Last year, Tarmac's division started 6,000 houses.

Mr Simms shrugged off criticism that this is a bad time to sell, saying that delaying the move once directors had decided on a new strategy would not have been in shareholders' interests. If the housing market improves before the sale goes through, Tarmac will benefit, he said. "If not, we'll be glad we got on with it."

Tarmac will invest the money it makes from the sale of its building division, along with pounds 67m it netted last spring when it disposed of its brick-making arm, in its quarying and contracting businesses. However, Mr Simms would not identify individual projects.

The company will also avoid having to rebuild its bank of land when retail prices for new houses are soft. NatWest Securities reported in May that Tarmac was suffering a net cash outflow because of that inventory expansion.