Tarmac swaps houses for roads

TOM STEVENSON

Deputy City Editor

The long-awaited consolidation of the troubled UK building industry was kick-started yesterday by the unexpected announcement that Tarmac is to swap its house-building operation, Britain's second largest, for Wimpey's construction and minerals activities.

The City welcomed the deal, with Tarmac's shares closing 10.5p higher at 93.5p, a 13 per cent rise. Wimpey was marked 15p higher at 127p, a similar increase. Both shares have under-performed sharply over the past year as trading conditions have deteriorated.

Following the deal, Wimpey will dominate the UK new-house market, building an estimated 15,000 houses a year. Joe Dwyer, the company's chief executive, said Wimpey had targeted 20,000 houses a year after expansion of its operations in the US and Australia.

Tarmac becomes Britain's leading road-builder and aggregates producer, generating substantial asset backing for what is expected to be a leading role in the Government's private finance initiative. Industry observers believe the PFI will be dominated by large, financially strong companies.

Both companies described the asset swap, which puts a value of about pounds 320m on Tarmac's housing operation, as a "win-win situation". Tarmac signalled in August that it planned to withdraw from house building, but yesterday's deal confirmed that neither company could continue to fund expansion of a range of businesses and would need to focus on only one of their existing divisions.

By swapping assets in this way, the companies avoid accepting a discount to underlying value in the disposal ofunwanted divisions, and the need to pay a premium when the funds raised are reinvested.

Neville Simms, Tarmac's chief executive, said the deal answered criticisms levelled in August that the sale of housing would fail to achieve asset value, that Tarmac would be unable to reinvest the funds effectively and that earnings per share would be diluted. The deal was confirmation of his confidence in the long-term future of the construction industry, which has been plagued by overcapacity and low demand.

Analysts welcomed the deal but some expressed concern over the large cash demands Wimpey would face running a house-building company with a land-bank of more than 30,000 plots. Mr Dwyer expected to spend in excess of pounds 200m a year simply replacing the land consumed by new houses.

Wimpey estimates that it will control about 10 per cent of the UK's new- build housing market following the merger. Barratt and Beazer, the next largest rivals, have market shares of only about 4 per cent.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before