Allied Colloids pays $390m for chemical firm

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The Independent Online
Allied Colloids is mounting its biggest ever acquisition with the $390m (pounds 233m) purchase of CPS Chemical Company, a US supplier of chemical intermediates to the Bradford-based group. To help pay for the deal, Allied is tapping shareholders for pounds 173m in its first rights issue for 20 years.

The sale will net $187m for Phil Meisel, the man who founded the CPS business in 1955 and whose family still controls 96 per cent of the shares. His sons are less involved in the business and at the age of 69, he has decided to retire. He will be retained by Allied as a consultant for a year.

The move was generally well received by the stock market yesterday, despite the simultaneous announcement of a modest 4 per cent rise in interim profits to pounds 21.1m. Allied's shares fell just 5p to 138p, well above the rights terms. Shareholders are being offered two new shares at 118p each for every seven held, with the rights fully underwritten by Kleinwort Benson.

The acquisition follows a period of management change at Allied Colloids, including the imminent retirement of chairman Sir Trevor Holdsworth and the appointment 18 months ago of David Farrar, who previously ran the group's North American arm for four years. Mr Farrar said CPS had been a long-term acquisition target for some time. The two companies had built up a close relationship in the eight years CPS had been supplying Allied and the latter was its largest customer, representing 14 per cent of annual sales.

Like Allied, CPS is involved in water soluble polymers, although its products come at an earlier stage in the supply chain. Mr Farrar claimed CPS leads the world in its niche, with products used in the treatment of effluent, drinking water and to maintain cleanliness in boilers and cooling towers, among other applications. Customers include the mining, oil and water treatment industries.

"It brings us into a market which has grown at some 10 to 15 per cent over the past five years," Mr Farrar said. CPS would "enhance our core chemistry" and bring synergies. Over the next year or two, the combined purchasing power of the groups would allow them to buy at lower prices, while the US group's reach could be extended to Europe and the Far East using Allied's 400-man salesforce. Currently 78 per cent of sales are within the US.

He dismissed the loss of business from two customers, including the French group Floerger, its main rival, after they decided to build their own intermediates plant at the end of 1995. That has hit results this year, but the $23m of lost sales had since been more than made up elsewhere and Floerger had returned as a customer.

Allied said that, after exceptional charges in the past 30 months, underlying profits rose 17 per cent in the six months to September.