Credit smokescreen clouds real issues behind Tarmac sell-off

So, let’s get this straight: Anglo American, the mining giant, has postponed the £3bn sale of Tarmac, its UK-based aggregates and asphalt business, because of the credit crunch. Reports have stated that Anglo is waiting a couple of months for the debt markets to cool, so that private equity groups can then raise the cash to fund a deal.

Rubbish. Anglo’s advisers, UBS and Goldman Sachs, the investment banks, are no fools. They will be fully aware that private equity will struggle to raise that kind of finance by March or April, just as they would have known that the money wouldn’t have been available in the New Year.

Look at it this way: assuming that a private equity fund puts up one-third of the offer price (itself an optimistic proportion), that means it would still have to raise about £2bn through the banks. And, according to senior private equity sources, the debt market is tough even for so-called ‘mid-market’ deals – those of up to about £250m. If banks are willing to fund a deal 12 times bigger than that by Easter it would mark the greatest comeback since, well, the Resurrection.

Chief executive Cynthia Carroll is astute - but also extremely cautious.

Rather, it is clear that Anglo always believed Tarmac’s buyer would come in the form of a cash rich trade buyer. Chief executive Cynthia Carroll is astute - but also extremely cautious. She would not have announced her intention to sell Tarmac in August, just as the credit crunch was taking hold of the City, had she believed that private equity was the most likely buyer.

To my mind – and, far more significantly, that of a leading mergers and acquisitions banker - the real reason for the delay is that Lafarge, the French building materials major, last month spent £6.3bn on Orascom Cement, a Middle East-based peer. Lafarge and Orascom were two of the three most likely trade bidders for Tarmac, and the French group will need time to digest its new assets.

What’s more, Lafarge chief executive Bruno Lafont has since said that he is not about to spend billions of pounds on Tarmac.

What’s more, Lafarge chief executive Bruno Lafont has since said that he is not about to spend billions of pounds on Tarmac.

That would have left CRH, the Irish building materials group as the most obvious bidder; potentially, a one party auction. And a lack of competitive tension would have severely dampened the sales price.

Expect this deal to happen later this year – Tarmac simply has no business being part of a pure miner like Anglo – but only when Lafarge is good and ready to join the bidding.