Materials/construction split is short on details but intended to placate shareholders, says City.
Tarmac this week revealed the first details of its long-awaited demerger.

In an announcement released simultaneously to the stock exchange and Tarmac's 24 000 employees on Tuesday, the company said its construction services and heavy materials businesses would split into two separately listed companies.

Tarmac's statement gave little away about the form of the new businesses, with the company privately conceding the businesses could take up to six months to launch.

The board has promised further details at the announcement of Tarmac's preliminary 1998 results on 16 March.

A bid to calm shareholders

This led to speculation that the announcement had been made to calm shareholders who became disgruntled after Tarmac failed to pull off a merger with Aggregate Industries late last year.

One analyst said: "There's nothing new in it really. It is just a move to placate shareholders." He said the wording of the statement made it clear that Tarmac is still on the lookout for possible partners.

"They are making it clear that they are still open to merger offers. They're virtually saying: 'Any ideas on the future of Tarmac, please drop them on the back of a postcard and send to Hilton Hall.'" But a source at one of Tarmac's major shareholders gave the deal a provisional thumbs-up. "They had to do something. This is a start," he said.

Mike Betts, an analyst at JP Morgan, broadly welcomed the announcement. "I think it is long overdue, but good news for shareholders. I think Tarmac realised that it was too difficult to try to continue to argue that there were any real synergies between the two businesses." Although the aggregates business is likely to benefit from the change, the future for the construction arm looks more difficult, Betts said. He believes Tarmac will have to inject at least £150m into the business to make it viable as a separate company.

They’re virtually saying: ‘Any ideas on the future of Tarmac, please drop them on the back of a postcard and send them to Hilton Hall.'

City Analyst

He added: "With a less strong balance sheet behind it, it may be viewed less favourably when bidding on large contracts such as private finance initiative deals." Leslie Kent, analyst at stockbroker Townsley, also welcomed the news: "Tarmac had become too big to handle properly – splitting will give them better control over the business. It's a sensible solution. It gives Tarmac's shareholders a choice of which business they will go for." The market welcomed the news, with Tarmac's shares, which had been bearish since the collapse of the Aggregate Industries deal at Christmas, rebounding to close at 117p on Tuesday – 4.25p, or almost 4%, up on their closing value the previous day.

Among the most interesting questions now is who will head the new businesses. Dr Les Atkinson is group executive director at Tarmac Construction Services, while Roy Harrison heads Tarmac Heavy Building Materials.

It is also unclear what role finance director Chris Bunker will take.

Where next for Sir Neville?

The City is waiting to see what Sir Neville Simms' role will be in the new company. His determination to hang on to the reins at Tarmac was blamed by Aggregate Industries for the failure of the deal. Sir Neville strongly denied this was the case.

Another analyst said: "The personality issues will have to be sorted quickly. There's obviously only going to be two big jobs with at least four people to fill them. It will be interesting to see what Sir Neville does." In his statement to the stock market, Sir Neville said the board had been aware of the need to separate the businesses for some time.

He said: "Both business streams are now mature and well-structured market leaders and will benefit independently, or in partnership with others, from the strong markets they have built up." A Tarmac spokesman said it was unlikely that any redundancies would result from the demerger. He said it was too early to say whether any non-core assets were likely to be up for grabs.

The company has not yet decided if either of the new firms will carry the Tarmac name.