Dalgety admits defeat in petfoods battle and sells Spillers for pounds 715m

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The Independent Online
Dalgety, the troubled foods group, yesterday took the City by surprise with the sale of its Spillers petfood business to Nestle for pounds 715m, in a dramatic strategic U-turn. Andrew Yates reports that Dalgety's shares soared as the market looked forward to the return of pounds 650m to shareholders.

The sale of the Winalot and Felix petfoods business to Nestle of Switzerland delighted the market and the shares leapt 49.5p to 343p.

The decision marks the end of the group's 19-year battle against the Mars-owned Pedigree Petfoods and the reversal of the plan by Richard Clothier, the group's previous chief executive, who had hoped to create a powerful player in the highly competitive European petfood market.

The company claimed the sale followed an "irresistible" offer from Nestle. "We've got tomorrow's price today," Ken Hanna, the chief executive, said.

Dalgety is now preparing to pay out pounds 650m to long-suffering shareholders because of the petfood windfall. It also achieved a much higher price for Martin Brower, the US distribution business that supplies McDonald's, which was sold to Reyes, a private American group, for pounds 120m.

The latest sales mean that Dalgety has raised pounds 1.2bn from disposals in the last few months. The deals follow hot on the heels of the pounds 360m sale of its ingredients business to Kerry, the Irish food group.

Mr Clothier expressed sadness at the break-up of the business yesterday. "After it sold its Australian operations Dalgety was always looking for a reason to exist," he said. "We got close."

Mr Clothier, who resigned from Dalgety last year after the group issued two profits warnings in two months, justified his decision to buy the Quaker petfoods business. "Without it, the Spillers business would have been a distant third in European petfoods."

But he said the management had achieved a good price for the petfoods operation, in which Dalgety invested more than pounds 100m in the three years since the acquisition.

The sale could threaten the jobs of the 1,500 workers employed by Spillers in the UK. However, Dalgety, which recently laid off 600 staff at the business, believes Nestle is not planning further redundancies.

City observers believe the deal could be held up for months due to close scrutiny by the competition authorities. Nestle, which sells petfood brands such as Gourmet, will control more than a quarter of the pounds 5bn European petfoods business. It will also sell about one in every three tins of petfood sold in the UK. Analysts believe that it could be forced to sell several brands but the deal is unlikely to be blocked completely. Its market share will still be well short of Mars, which sells two-fifths of all petfood in Europe.

If the deal goes ahead, shareholders will receive pounds 250m by June, with the balance of pounds 400m in the following year.

Dalgety has now sold three of its five main divisions in an effort to reduce debts and shore up its balance sheet.

It is left with PIC, the world's leading pig breeding business, which it intends to grow rapidly. However, it is still lumbered with a troubled agricultural supplies division which has been hit by the slump in the demand for cattle feed brought on by the BSE crisis. The group has been forced to write down the value of the business by a half to pounds 60m and analysts believe it will be sold as soon as profits show signs of improvement.

Investment column, page 22

dalgety's deals

1994: Sells off US food distribution operations for pounds 86m. Acquires Spanish petfoods business for undisclosed sum.

1995: Buys Spillers petfoods from Quaker Oats for pounds 442m and adds to existing petfoods empire. Chief executive Richard Clothier embarks on a campaign to become a big player in the European petfoods market. Sells a number of consumer food brands including Golden Wonder crisps and Homepride cooking sauces in a pounds 300m deal

1998: January - sells food ingredients business to Ireland's Kerry Group for pounds 360m. February - sells petfoods division, including Spillers, to Nestle for pounds 715m; sells US distribution business Martin-Brower for pounds 120m and promises to return pounds 650m to shareholders

Future: An agricultural feed business, which will probably be sold. The Pig Improvement Company, which supplies genetically improved breeding stock to pig producers.