Deputy City Editor
Ibstock, Britain's third-largest brick manufacturer, confirmed yesterday that it had approached Tarmac with a view to buying its brick-making operations. It said it was too early to say whether a deal, estimated to be worth between £60m and £90m, would go ahead.
Ibstock, which bounced back into the black in the first half of 1994 after two years of heavy losses, said recently it planned to increase its brick-making capacity following the sale of its stake in Caima, a Portuguese forestry and pulp company.
Tarmac, which ranks fourth in the UK after Ibstock, Hanson and Redland, made about 300 million bricks last year, less than 10 per cent of the market. It is understood to have considered that share to be too small to be regarded as a core business.
The acquisition would almost double Ibstock's market share of about 11 per cent, taking it ahead of Hanson and Redland, which both have just under a fifth each.
It has already increased its capacity by 50 million bricks this year with the purchase for £15m of Centurion Brick and Scottish Brick.
Following a recovery in demand from housebuilders, especially in the first half of last year, the industry is starting to rebuild capacity for the first time since the beginning of the building slump.
Brick sales rose by about 11 per cent last year and further increases are expected this year. Stock levels have fallen sharply, reaching the lowest levels for six years and more capacity is needed even if, as expected, the housing market remains relatively subdued.
Analysts questioned the wisdom of Ibstock swapping one highly cyclical business - pulp - for a focus on another.
Caima, in which Ibstock holds a 56 per cent stake worth just under £50m, suffered heavily in the recession and the closure of one of its plants cost Ibstock an exceptional £18m in 1992.
As with bricks, the industry had become oversupplied and prices for pulp fell from a high of $720 a tonne in 1989 to $350 at the bottom of the cycle.
Despite rises of about 8 per cent in brick prices last year, and more increases forecast for this year, prices remain well below the peak £190 per thousand makers were achieving in 1989.
Since then, however, capacity has fallen by a quarter, with the loss of more than 500 jobs, and last year brick plants were working at full capacity.Reuse content