Ibstock builds on bricks with Redland deal

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The Independent Online
Ibstock is to become Britain's leading brick manufacturer, pushing its biggest rival Hanson into second place, with the pounds 160m acquisition of Redland's UK operations. The deal, which involves a pounds 100m rights issue, yesterday sent Ibstock's shares 15 per cent higher to 85.5p as the market welcomed a long overdue consolidation of the struggling brick industry.

Ian Maclellan, chief executive, brushed aside concerns that the deal, which takes Ibstock's market share to 35 per cent, would be referred to the Monopolies and Mergers Commission. The company would not say as much, but it is understood that the Office of Fair Trading will wave the deal through in return for some disposals in areas such as the Midlands where Ibstock will become a dominant producer.

The possibility of a referral was highlighted by the structure of the two-for-three rights issue being used to part-fund the acquisition. Pitched at 55p, a sizeable discount to Wednesday's close of 74.5p, the issue is dependent on the deal being shown a green light.

Sir Colin Hope, chairman, said: "This is a unique opportunity for Ibstock to establish its core UK brick business at the forefront of the industry. There will be significant opportunities to reduce overheads and operating costs in the combined business."

He highlighted the sensitivity of the brick industry to capacity utilisation and price increases, saying that a pounds 1 increase in the typical pounds 150-per- thousand selling price for bricks would add pounds 1.1m to profits. Similarly, a 10 per cent rise in demand would add pounds 3m to profits.

Mr Maclellan would not be drawn on possible job losses, but since Ibstock acquired Tarmac's brick business 50 of its target's 700 workers have lost their jobs. The Redland operations employ about 1,300 staff, suggesting up to 100 jobs could be at risk.

If the takeover is approved, Ibstock will overtake Hanson's operations which produce 31 per cent of the market's total output of about 3 billion bricks a year. It follows nine months after Ibstock acquired Tarmac's brick business, with 7.5 per cent of the market, for pounds 71m.

Ibstock is believed to have outbid Wieneberger, the Austrian producer that until earlier this week was favourite to acquire the Redland business. It defended the price paid, which compared with operating profits of only pounds 8.5m last year, by promising overhead reductions of about pounds 6m from the integration of the acquired business with its existing plants.

The announcement of the Redland acquisition accompanied an 83 per cent jump in pre-tax profits from pounds 14.3m to pounds 26.1m. At the bottom end of expectations, the company admitted that the rise was from a low base following two years of heavy losses in 1992 and 1993.

The result was driven by a big improvement in profits from UK bricks and a windfall from a surge in the price of wood pulp, which more than doubledprofits from the Portugese forest products division to pounds 12.1m.

Investment Column, page 18

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