Watchdog raises price and competition concerns over Breedon acquisition
Breedon’s proposed purchase of certain Cemex assets will raise competition concerns, and result in higher prices for materials in the East of Scotland, the Competition and Markets Authority (CMA) has warned as it set a five-day deadline for the concerns to be addressed.
A conditional agreement was reached on January 8 for construction materials supplier Breedon to pay £155 million in cash together with the assumption of £23m of lease liabilities for 100 sites across the UK of global firm Cemex, including aggregates quarries, ready-mixed concrete facilities, asphalt plants and a cement terminal.
The companies are two of the leading producers and distributors of construction materials in the UK and Ireland. All of these materials are widely used in the UK construction industry as essential components in the construction of roads, buildings and other infrastructure.
Following its initial Phase 1 investigation, the CMA found that the deal gives rise to competition concerns in relation to the supply of ready-mixed concrete, non-specialist aggregates or asphalt in 15 local markets across the UK. In all of these local markets, the two businesses currently have a large presence and compete closely, with limited competition from other suppliers.
The CMA has also found that the merger could make it easier for cement suppliers in the East of Scotland to align their behaviour, without necessarily entering into any express agreement or direct communication, in a way that limits the rivalry between them. The CMA found that this could result in cement suppliers competing less strongly for certain customers in the region.
The CMA is therefore concerned that the deal could result in a substantial lessening of competition, leading to higher prices and lower quality building materials for UK construction projects.
Colin Raftery, CMA senior director, said: “These products are widely used in a range of building projects across the UK, and account for a material part of the construction costs faced by businesses and public bodies. As the majority of these materials are sourced locally, it’s vital to ensure that enough competition will remain at the local level so there’s enough choice and prices remain fair.
“While sufficient competition will remain in most areas, we are concerned that the deal could result in high prices and lower quality products in some areas where Breedon wouldn’t face sufficient competition.”
Breedon and Cemex must now address the CMA’s concerns within five working days. If they are unable to do so, the merger will be referred for an in-depth Phase 2 investigation.