ICI comes to a fork on the road to its future

Click to follow
The Independent Online
AT 3.30pm on Wednesday, Tony Rodgers left ICI's Millbank headquarters in London and headed in his Daimler for Heathrow Airport. Mr Rodgers, a Colonel Sanders lookalike who runs the group's Far East activities, did not know whether he was going to depart, however, because the main board was still deciding whether to go ahead with its Grand Plan.

He rang from the airport, was told it had been approved, and flew to Singapore. Soon ICI's Asian managers were converging for a meeting with him. Around the world, the pattern was repeated. David Barnes, head of US operations, left Millbank to fly to Wilmington, Delaware, where senior American managers were heading; Sir Denys Henderson, ICI's chairman, and Ronnie Hampel, the chief operating officer, were driven to the group's conference centre just outside London to meet the European bosses. At the same time, word went out that 120,000 letters could be released to employees.

The plan was to split ICI in two: to follow the fashion for demerger by creating two companies that should do better on their own than together. One, ICI Bioscience, would have pharmaceuticals, agrochemicals, seeds and speciality chemicals - the supposedly go-go parts of the group. The rest - mainly paints, industrial chemicals and explosives - would remain in a company called ICI. But the plan depended on the stock market's reaction, which was why a final decision had to wait until this week. The Wellcome flotation's reception was crucial. It would show whether the market was still keen on pharmaceutical stocks, and thus whether ICI Bioscience would get the high stock market rating on which the whole scheme hinged.

Wellcome was a qualified success, and the board said yes. 'If it had not, it would have given us some interesting problems with a lot of shredding,' Mr Hampel said.

Sir Denys and Mr Hampel - increasingly a Tweedle Dum and Tweedle Dee act - spent Thursday briefing the City about the deal: it loved it, and ICI's shares jumped 76p, despite miserable half-year results.

The City saw that the plan was elegantly simple. The split would mean that the two halves of ICI were very different beasts. The rump would be highly sensitive to economic cycles, making it a risky investment with a consequent low share rating. It would find raising money on the stock market expensive but could be given the bulk of the available cash when the group was split up. ICI Bio, on the other hand, should have a high rating, making a rights issue effective. The result: both companies would get money for expansion in the cheapest possible way.

This was not, however, the thrust of the Hampel-Henderson explanation. For they had a delicate balancing act to perform. While they desperately want to please the City, the rationale must be seen to be industrial. For, as they know to their cost, there are other people who can run rings round them in purely financial manoeuvrings: Hanson, which took a 2.8 per cent stake last May and held it for a year, is still the ghost at ICI's feast.

Sir Denys stresses that the roots of the change go back to well before Hanson arrived. He points out that he started a cost- cutting programme in the third quarter of 1989, that he announced the sale of the fertiliser business in July 1990, and that two months later he set up two task forces to consider whether the restructurings of the 1980s had been sufficient.

The chairman also claims he laid down a clue that there would be further big moves, when he said in his March 1991 report to shareholders that ICI would continue reshaping 'still more radically'.

For ICI, as for most big companies, decentralisation had been a theme of the 1980s. Following the 1980-81 recession, when it went into loss for the first time in its history, Sir John Harvey-Jones, the then chairman, decided that ICI should be totally reshaped. He considered following the Hanson model, turning the headquarters into a holding company that would allow subsidiaries almost complete autonomy. He decided this would throw away too many cross-benefits, but from then on the group stressed that decentralisation was the watchword.

This philosophy, combined with a massive overseas acquisition programme that boosted specialist, supposedly recession- proof products, appeared to pay off. In 1985, Business Week ran a story headed 'Behind the stunning comeback at ICI,' and pre-tax profits climbed steadily to pounds 1.5bn in 1989.

By 1991, however, it was clear that ICI was far from recession- proof. Although it stayed well in profit, it was under increasing pressure. Hence the emergency cost-cutting programme. But the emphasis on decentralisation continued until a miraculous conversion in May.

Hanson's move put ICI in something of a cleft stick. If Mr Henderson intended to go further down the decentralisation path, possibly to demerger, he could not tell anyone because that was what Hanson thought should happen.

So ICI frantically tried to prove how necessary it was to keep all its bits together. Its researchers came up with examples of cross-benefits between divisions. They had some validity, but not much, as the current move shows.

By the end of last year, Sir Denys decided that the Hanson threat was sufficiently remote to allow him to reactivate former plans.

As the ideas crystallised, groups were set up to see just how ICI would be split. In three frantic months, detailed plans were drawn up in secret. Everything was ready, and only a Wellcome disaster could stand in the way. It did not, and ICI should be split next summer.

It will take many years - probably until the next recession - before we know whether the division has been a success. What will decide the future is the quality of the management and whether ICI can survive on its own when times get rough. Both Sir Denys and Mr Hampel retire in 1995. It will be interesting to see whether in the years after that the memories of Tweedle Dum and Tweedle Dee are revered, or reviled.

(Photograph omitted)

Comments