Tarmac sells part of Econowaste for 44m pounds: Deal doubles ARC's landfill capacity

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TARMAC, the building materials group, has sold part of its waste management business to ARC, the Hanson subsidiary - almost a year after it was first put on the market.

The pounds 44.2m price tag initially disappointed the City, where some analysts thought Econowaste could raise more than pounds 100m. But Tarmac pointed out that ARC is buying only about two-thirds of the business, valuing the whole at about pounds 66m.

Greenways Landfill, ARC's waste disposal subsidiary, is buying 18 of Econowaste's 32 operations, accounting for about two-thirds of its pounds 3m revenue. It will also have the option to acquire a further 17 landfill sites. The deal will more than double its landfill capacity to 96 million cubic metres, making it one of Britain's largest operators.

Tarmac first put Econowaste on the market last year as part of a restructuring package implemented by Neville Simms after he took over from Sir Eric Pountain as chief executive. Since then, sentiment has turned sharply against the industry following a series of profit warnings from companies that had been expected to be virtually recession-proof.

The group was close to clinching a deal shortly before Christmas - believed to be for about pounds 80m - but that fell through at the last minute. Yesterday's deal brings the total raised during the restructuring to pounds 200m, or two-thirds of its target. It is already in discussions about selling the other parts of Econowaste.

Econowaste was started up by Tarmac as a way of using its gravel pits when they became exhausted. The sale is likely to produce a profit for the group, but it would not give any indication of the likely size.

It will also help to cut the group's debt, which stood at pounds 577m - 60 per cent of net assets - at the end of December. Seasonal increases mean that borrowing at the interim stage is unlikely to be significantly lower than that, although it is running at about pounds 100m below last year's level.

The disposal coincided with Tarmac's annual meeting at which Sir Eric, who remains as chairman, said economic recovery was continuing. But he added that, apart from a consistent improvement in housing, the recovery had proved 'gradual and variable'. Tarmac's shares rose 0.5p to 137.5p.