Breedon Group PLC (LON:BREE) has been given five days to come up with a solution after the UK competition watchdog raised concerns about its £178mln Cemex acquisition last month.
The Competition and Markets Authority (CMA) said that its initial investigation has found 15 local markets across the UK where the deal could create problems with competition in the supply of ready-mixed concrete, aggregates or asphalt.
The CMA also flagged concerns in the East of Scotland over cement supply.
If the company does not offer any satisfactory remedies to these problems the CMA will progress to a deeper ‘stage two’ investigation.
“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,” said Colin Raftery, a senior director at the CMA.
“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 put out a statement saying the result of the stage-one probe were “broadly in line” with its expectations.
Any remedies to address the CMA's concerns would be expected “to take several months to implement”, the company noted, during which time the former Cemex assets will continue to be held separate from Breedon and operated as Pinnacle Construction Materials.
Analysts at broker Peel Hunt said it was “hardly surprising…although the number of markets is slightly higher than we would have expected, while the cement comment will also be a bit disappointing”.
“However, we think the group will be very keen to avoid a phase 2 investigation given the amount of management resource that would be required to deal with it.”