Blue Circle may purchase Japanese rival for £1bn

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The Independent Online

The global cement industry is undergoing lightning consolidation, and Blue Circle could be eyeing up its next big acquisition in Asia.

The global cement industry is undergoing lightning consolidation, and Blue Circle could be eyeing up its next big acquisition in Asia.

So far, the industry's 10 biggest players have contented themselves with a series of smaller acquisitions in emerging markets. But as the competitive stakes increase, so too do the sizes of potential deals and the temptation for the majors to target the small cast of other multinationals.

Blue Circle's chief executive, Rick Haythornthwaite, is still looking over his shoulder at 20 per cent shareholder Lafarge, which was left with the stake after its bid for Blue Circle failed. However, say City analysts, the former prey has now turned hunter, and is understood to be looking into a £1bn purchase of Japan's premier cement-maker, Taiheiyo.

Although it declines to comment on market speculation, Blue Circle is widely known to be considering where to plant its next flag. Around it, rivals are scrambling to buy, in what Ken Rumph of Merrill Lynch calls a "land grab".

Switzerland's Holderbank and Mexico's Cemex are both pursuing Portugal's Cimpor. Meanwhile, Germany's Heidelberger and Dyckerhoff are digesting last year's major deals and pondering the future of their formerly rock-solid shareholder bases after capital gains tax reform.

Unfortunately, the City did not respond well to Blue Circle's previous buys in Asia, which explains the company's cautious approach to the area. But observers believe that Blue Circle, after a lengthy period of prompting, has now decided the time may be right.

There are two chief drivers behind the industry's current enthusiasm for corporate activity. The main one is that acquisitions are now seen as the only way of generating serious growth.

During the 1980s, Holderbank set the pace with a dizzying series of foreign acquisitions. The logic was clear: the way to reduce the effects of a highly cyclical domestic market was to set it against a portfolio of differently timed foreign cycles.

The rest of the industry has taken time to catch up with that view, but as Lafarge, Blue Circle and Cemex have found, it is the only way. If successful in acquiring Taiheiyo, Blue Circle will have operations in Japan, China and the US.

The other driver is the unique breakdown of the sector. In contrast with other commodity-type industries, such as mining or chemicals, the 10 biggest companies control only 30 per cent of the market. Long constrained by tough local anti-trust laws, the industry is now testing its strength as many barriers are falling.

The premiership status of even the biggest players is under constant threat from high-flying smaller players. Companies dominating small domestic markets in South America or Eastern Europe have little problem expanding their businesses into neighbouring countries. It does not take long before their cut of the global market rivals that of the big boys. Cemex, a rare global titan from Mexico, is a prime example.