Breaking up is hard do

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The Independent Online
ICI IS planning to break itself up because its parts might be worth more than the whole. At first sight this may seem odd, but case histories suggest it may be right.

Examples of successful demergers include Courtaulds, Racal and BAT Industries. The demerger of Argos from BAT and the sale of several other retailing businesses were triggered by a failed takeover attempt by Sir James Goldsmith.

The Courtaulds experience is particularly useful for ICI because both are chemical companies in origin. Since Courtaulds Textiles was hived off its shares have outperformed the rest of the market by more than 60 per cent, and shares in Courtaulds by about 40 per cent.

Courtaulds says the demerger has allowed managers to focus on smaller businesses. Costs have been cut.

Racal has also proved that businesses can be worth more apart than together. Before Racal Electronics demerged fully from Racal Telecom - now Vodafone - it was valued on the stock market at less than the value of its 80 per cent holding in Vodafone. In effect, the non-Vodafone businesses had a negative value. Now Racal Electronics is worth pounds 900m without Vodafone, which is worth a further pounds 3.2bn in its own right.

However, few companies have taken the opportunity to break themselves up. This may be because most conglomerate directors want to keep their jobs, their large head offices and the privilege of being able to concentrate on strategy rather than the nitty- gritty of operational management.

Demergers are also difficult to arrange. The complexity of splitting companies, in particular central services such as treasury, personnel and pensions, can be an obstacle to break-ups.

Investors suggest several other candidates should be broken up. The list includes Boots, which operates its shops alongside a drugs company, British Aerospace, which includes Rover, a property business, civil aircraft and a huge defence business, and Thorn EMI, which runs a music business alongside a TV rental chain.

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