Crunch time for United Biscuits

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The Independent Online
NIGEL COPE

United Biscuits, the troubled McVitie's and KP snack business, announced its first loss in living memory yesterday, sparking renewed speculation that the company may be the subject of a takeover bid.

It reported a pre-tax loss of pounds 48.5m for the six months to July compared with profits of pounds 76m last year, due principally to the sale of its loss- making Spanish operation.

Costs associated with the sale of the Spanish snacks business, which was announced yesterday, dented profits by pounds 53m. This includes a cash payment of pounds 7m to the buyer - Spanish group Galletas Siro - to take the business away. UB shares fell 7.5p to a year's low of 268.5p as the City had been expecting profits of around pounds 25m.

One institutional shareholder said: "The business has fundamental problems. The forces it is battling against are just too powerful for it to cope with. It will be taken over one day but not at the current price."

One food industry analyst, who expected management changes to be made, said: "The business continues to struggle in its main sectors. Given the difficulties it faces it does not look an attractive target."

Analysts suggest that about 25 per cent of the share price is bid speculation, but that a lower price could tempt several international food companies. These include Nestle, Campbell Soups and PepsiCo, which owns the Walker's Crisps brand. Cadbury Schweppes expressed an interest two years ago.

Colin Short, the new chairman who only joined the group in July, said he was disappointed with the results. "This is a watershed in the group's history. But with a re-jigged balance sheet, I feel encouraged about what lies ahead." On the takeover speculation, he said: "I have no idea if someone is going to make a bid."

Eric Nicoli, chief executive, said: "This is a good business not performing to its potential. It is an opportunity for a new start."

UB has been a victim of fierce competition in the global snacks business at the hands of competitors such as PepsiCo and Nestle. It has also faced soaring raw material costs in areas such as packaging and a battle of the brands with supermarkets' own labels.

In May, UB put its Keebler business in the US up for sale, ending a 22-year attempt to crack the American market. There was no news on a sale yesterday, though Mr Short hoped to make an announcement by the end of the year. Analysts estimate that the businesses could fetch about pounds 400m.

UB desperately needs to sell Keebler to generate cash to strengthen its balance sheet and free management to concentrate on the UK and European operations. In the six months to July, Keebler turned a pounds 20m profit into a pounds 2m loss after fierce competition. Profits sank by more than half in continental Europe, by a third in the KP crisps business in the UK, by 14 per cent at McVitie's and 2 per cent in Asia Pacific. Ross Young's reported a 1 per cent increase in profits.

Investment Column, page 28

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