Aggregate Industries says 'no' to Tarmac

The proposed merger of Tarmac and Aggregate Industries (AI) to create an aggregates giant fell through late on Monday night.

The breakdown in discussions has also stifled plans by Tarmac chief executive Sir Neville Simms to link the firm's "unwanted" construction arm with other major contractors to form a new super contracting group that would be able to compete with the largest overseas contractors.

In a two line statement announcing the end of talks, AI said it "will continue to pursue opportunities to participate in the consolidation of the building material industry, where value can be created for AI's shareholders."

Tarmac chairman Sir John Banham expressed anger at AI's decision.

Sir John said: "At the eleventh hour, the board of AI sought to change certain key terms of the proposal which had already been agreed in principle. These changes would have effectively resulted in a nil-premium management takeover of Tarmac by AI and we were not satisfied that the potential synergies would have been realised."

As yet, there is no indication whether RMC might step in. RMC was rumoured to be ready to make a hostile bid if AI and Tarmac agreed terms.

However, one analyst thought RMC would no longer be interested. He said: "Isn't the fact that AI is not doing a deal telling RMC and the market something about the state of Tarmac." He added: "There has been a lot of talk about the state of the balance sheet, the price being asked and the profitability of the company's contracting activities."

He thought the fact that the deal had fallen through will lead to Tarmac's share price falling dramatically and that "Sir Neville is going to be put under the spotlight in the hardest possible way and he is going to face some serious questioning."

Scrapping of the £1.8 billion merger has also scuppered Sir Neville's plans to use the opportunity to create a super construction group. If the merger had gone ahead, one of the conditions laid down by AI was that Tarmac's construction activities would not be part of the deal.

This is said to have paved the way for Sir Neville to explore linking with other major contractors. Laing and Bovis are said to have been contacted. A link with Bovis was said to have been a strong possibility especially after consultant WS Atkins broke off talks with Bovis last week (see below).

The super group had even been provisionally dubbed "UK Construction PLC."