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Targets on brink of something big

Finance: City site

ASIDE from the general merger mania which appears to have gripped the building materials industry, there are a handful of common themes behind the bids which have surfaced at Rugby and Tarmac in the past week.

Both companies have valuable market shares and, while both have been pedestrian performers in recent years, both are seen as being on the verge of producing better results after making major disposals.

Yet neither company is in a strong position to defend its independence.

The rejection by Tarmac chief executive Roy Harrison of Anglo American's 550p offer may have been hasty. Since Carillion was spun off last summer, Tarmac's shares have fallen from 553p to 357p and the recent results underlined a dependence on the UK and the heavy level of debt. At 550p, a bid would have been equivalent to almost 16 times Tarmac's expected underlying earnings this year; possibly higher if rising interest rates have an impact.

If Mr Harrison succeeds in flushing out a higher offer, all credit will be due. But if Anglo had launched a hostile bid at 550p, most analysts believe Tarmac would have struggled to beat it off.

Meanwhile, most of the usual suspects are being mentioned as potential suitors for Rugby.

In most countries where it operates, Lafarge operates a cement business alongside an aggregates operation and, apart from convention, there is no reason why it should not apply the formula in the UK. CRH, Ireland's only cement maker, has the appetite for acquisitions and the resources to raise the£750 million or so it would take to buy Rugby. RMC and Pioneer could also be in the frame. But big international cement groups such as Holderbank are more interested in pursuing new business in developing countries than in mature markets like the UK.

Either way, there seems little resistance to the notion that, having failed with its diversification into joinery, Rugby's future would be better secured as part of a larger group. If the bid does go through, it will make the medium-sized building materials producer an even rarer species in the UK.

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