Sir Neville Simms, the Tarmac chief executive, said the break-up of the 96-year-old group would help to develop the two businesses and revive the company's flagging share price. Tarmac stock has underperformed most of its rivals because the low-margin construction business dampened the prospects of the highly-profitable building materials operations.
"Having two different businesses in the same group is confusing. They were just not valued satisfactorily," Sir Neville said. The shares closed up 4.25p at 117p yesterday, as the market speculated that the building materials part of the group could be targeted by Tarmac's arch-rival Aggregate Industries.
Talks over a pounds 1.8bn merger between the two companies collapsed at the end of last year after a bitter row over the management structure of the group. Aggregate Industries (AI) was not available for comment yesterday, but Sir Neville said that a takeover was "impossible" because Tarmac building materials was bigger than AI.
Under yesterday's plans, Tarmac would spilt its two main divisions into two separately quoted groups in the second half of the year, through a distribution of shares to existing investors.
The building materials group, which last year had sales of pounds 1.2bn and profits of pounds 142m, will be the larger of the two. City analysts said the company was expected to have a market value of around pounds 880m - 80 per cent of the group's existing capitalisation.
Tarmac building materials has 10,000 employees and is one of the leading players in the UK market and also has a substantial operation in the US and Central Europe.
The construction and civil engineering group, which posted a pounds 29m profit on turnover of pounds 1.6bn, would be valued at around pounds 220m.
The unit, which has 13,000 employees, has moved away from traditional contracting to focus on higher-margin work such as privately financed projects.
Sir Neville said the demerger was not expected to create job losses among the group's 23,000 employees.
The company said that the management structure of the two groups had not been decided.