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Materials merger could spark Tarmac sale

NEWS OF a possible pounds1.6bn merger between Tarmac's building materials division and Aggregate Industries heralds a possible sell-off of Tarmac's construction activities.

The construction materials supplier Aggregate Industries announced on Monday that it was in talks with Tarmac about a possible merger 'which would result in a group focused solely on building materials.'

A merger of the two heavy building materials giants would allow massive cost savings between the companies and greatly increase share value. But the fact that Tarmac is in talks over its building materials division signals a possible de-merger or even a sell-off of its construction activities, according to analysts. There is strong shareholder pressure on Tarmac to get rid of its construction division because of low margins.

'If a merger goes ahead there are three possible scenarios for Tarmac's construction division,' said ABN Amro construction analyst Howard Seymour. 'It could de-merge, which would mean shareholders would receive a share in a new construction company and the market would decide the right price. Secondly, there could be a management buy out. Or there could be an outside buyer. This might lead to another scenario. Tarmac's services division is worth a lot more than its civils and building arms.'

European contractors - such as Hochtief - are thought to be the most likely to be interested in buying Tarmac's construction arm.

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