Bibby, which is 79 per cent owned by Barlow Rand, the South African group, announced plans last October to float its paper, laboratory products, electro-optics and agricultural divisions, aiming to raise pounds 75m to reduce debt. ABF subsequently approached it about the purchase of of the agriculture business.
Mr Richard Mansell-Jones, Bibby's chairman, said that flotation would have meant a sizeable loss but would still have been the most favourable option.
'But the new-issue market has become progressively more difficult,' he said.
The deal will cut Bibby's debt, as a proportion of its net assets, from 70 per cent to 55.
The high gearing was a legacy of the purchase of the Spanish distributor of Caterpillar machines in 1992, just as the market collapsed. But the group said its losses were now sharply lower.
The agriculture division made operating profits of pounds 3.8m on sales of pounds 200.3m in the year to last September, accounting for about a quarter of the group's sales but only 17 per cent of its profits. Its net assets were pounds 43.9m, which means the group will make a pounds 12.1m loss on the deal. It will also have to reinstate pounds 5.2m previously written off the reserves.
The deal will put ABF's animal feeds business on a par with Dalgety and BOCM Pauls, the joint leaders. It adds 1 million tonnes to ABF's annual production of about 1.6 million tonnes and gives it national coverage in compound feeds, which it produces only in Yorkshire at present.
The deal also includes a pig semen supplier and a company that supplies contract milkers and relief herdsmen.
ABF is paying pounds 35m, subject to adjustment depending on the net asset value on completion of the deal. Part of that will, however, be refunded by a pounds 3.25m payment into its pension scheme to reflect a deficit on the management scheme.
Bibby's shares closed 2p higher at 81 while ABF rose 17p to 598p.Reuse content