Tarmac and Aggregate on track for pounds 1.8bn merger

TARMAC AND AGGREGATE Industries are in the advanced stages of negotiations that could lead to a pounds 1.8bn merger of the two building materials groups.

However, Tarmac yesterday denied suggestions that a deal could be announced this week and said it was in talks with a number of the industry's key players.

A link-up between Tarmac and Aggregate would create a quarrying company big enough to rival established leaders such as Hanson, RMC and other international groups. Aggregate, based in Leicestershire, confirmed it was in talks with its Wolverhampton-based rival in October.

A central feature of the talks has been the future of Tarmac's construction division. It is thought that this division may now be de-merged into a separate company with a cash injection of pounds 100m-pounds 150m.

The division accounts for half of Tarmac's sales but only 20 per cent of profits. It is a complex business with a large number of contracts.

It is thought that the de-merged construction businesses will be run by Tarmac chief executive Neville Simms. Aggregate's chief executive Peter Tom would take the same role at the enlarged group.

The City believes the combined group might run into problems with the regulatory authorities because it would dominate the quarrying industry in the Midlands and the market for coated stones such as asphalt.

In recent weeks, Irish rival CRH and Amec are both thought to have put in bids for Tarmac, which has seen its share price dragged down by its construction business.

Shares in both companies soared in October when it was first reported they were in talks. Aggregate has jumped from 56.5p to 70.25p while Tarmac has improved from 80p to 110p.

The merger is expected to save costs by cutting corporate overheads and merging the two distribution networks.