The Yorkshire company has paid pounds 52m to buy Reckitt Colours International, a subsidiary of household goods company Reckitt & Coleman.
The deal has been stalled since November when Holliday was obliged to publish a profits warning that prompted a short-term collapse in the share price.
The acquisition will be funded by a one-for-four rights issue and increased borrowing. The issue has been set at 180p a share compared to a flotation price of 195p and an opening price yesterday of 210p.
The November profits shock sent shares tumbling from 225p to 155p.
RCI is the world's leading manufacturer of ultramarine pigment. Ultramarine - a blue colour best known as Dolly Blue - was used to make white laundry look whiter. However, its use in laundry is now restricted to the Third World: ultramarine has other industrial uses including colouring plastics.
Holliday is paying Reckitt cash for the company. The purchase price is 12 times last year's earnings. Analysts described the price as a reasonable one. Reckitt sold the business to concentrate on mainstream household products.
Michael Peagram, Holliday's chairman, said that he was pleased with the price and that the deal was finally struck despite the profits warning. He added that the deal would enhance earnings per share in the current year.
Last week the company announced it was in bid talks and said it was considering funding the purchase with the issue of convertible preference shares.
A spokesman for the company said the proposed issue of convertible shares was shelved following weakness in the bond market. Gearing will rise to 65 per cent.
Holliday also published its annual report yesterday. It shows that Mr Peagram was paid pounds 143,000 in 1993, a 10 per cent increase on 1992.
Shares fell 9p to close at 201p compared to a theoretical ex-rights price of 204p.Reuse content