The statement comes after the CMA last month (July) launched Phase 1 of its merger inquiry into the anticipated acquisition by construction materials group Breedon of the CEMEX assets. Breedon confirmed on August 3 that the acquisition had been completed.
The CMA now says it has decided on the information currently available to it that it "is or may be the case that this merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom."
The regulator adds that the merger will be referred for a Phase 2 investigation unless Breedon and CEMEX offer acceptable undertakings to address its competition concerns. The companies have yet to respond.
Breedon announced in January this year that it had entered into a conditional agreement with CEMEX to acquire certain UK assets and operations for a total of £178m. The deal includes the acquisition of around 100 CEMEX sites in England, Wales and Scotland that provide heavy building materials, including aggregates, asphalt, ready-mixed concrete, concrete products and cement, together with contracting services.
The CMA says 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 authority says it 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.
CMA senior director Colin Raftery commented: “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.
The CMA has previously instructed that the CEMEX assets should be held separate from Breedon until it has completed its investigation.
Accordingly, Breedon said that the assets will be operated as Pinnacle Construction Materials (“Pinnacle”), a newly-created ring-fenced business led by an independent management team and operating from its own offices.
