More corporate activity likely

In a new report, analysts at JP Morgan expect further corporate activity in the cement and aggregate industries, reflecting both further consolidation in both industries and vertical integration between the two. In 1999-2000 there were 5 corporate transactions announced within 12 months, reflecting, in JPM’s view, companies concerns that they could miss out, as well as the opportunity created by weakness in targets share prices caused by poor trading.

If further transactions are announced in the next few months, JPM is concerned that companies could again perceive a need to act quickly. However, current trading is generally strong, reducing the likelihood of significant share price weakness.

JPM continues to expect further consolidation in the cement industry. Although Holcim has not completed any major acquisitions of multi-country cement companies in recent years, it tried with both Cimpor and Dyckerhoff and we expect it to try again.

Lafarge will in our view be more cautious until it has improved the profitability of Blue Circle, its 2001 acquisition.  However, we estimate
that acquiring the minorities in its North American operations could potentially boost 2005 EPS by around 5%.

In the longer term we expect further vertical integration between the cement and aggregates industries.  However, in the shorter term, this may be preceded in our view by further consolidation amongst the major UK and US aggregates companies.