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
News
ebooksAn unforgettable anthology of contemporary reportage
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

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific