ICI launches pounds 1.3bn rights issue in run-up to the big split: Next month's Zeneca demerger will create two world-class companies, says chairman as 'grey market' in the shares begins

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The Independent Online
IMPERIAL Chemical Industries yesterday began the final countdown towards splitting itself with the launch of a pounds 1.3bn rights issue designed to ensure both parts have the funds to survive independently.

The money is being raised by Zeneca, which will encompass ICI's drugs, agrochemicals and specialties businesses, through a five-for-16 rights issue priced at 600p a share.

But the funds will immediately be paid over to the remainder of ICI, whose interests will include Dulux paints, explosives and industrial chemicals.

Sir Denys Henderson, ICI's chairman - who will also chair the two new companies - said: 'ICI and Zeneca are both world-class companies and I have considerable confidence in their future.'

The launch of the rights issue also marked the start of 'grey market' trading in shares in the two companies ahead of the formal split on 1 June. Zeneca's shares opened at 682p but dropped to 664p at the close, while those of new ICI rose from an opening price of 569p to 609p. Shares in the combined ICI group gained 21.5p to pounds 12.841 2 .

The 600p rights price was in line with City expectations, although some had been trying to talk it down ahead of the issue. ICI has already committed itself to maintaining the 55p dividend paid last year, split equally between the two new companies.

That puts the yield on the rights issue shares at 5.7 per cent, a 39 per cent premium to the market and almost 50 per cent above that of the rest of the drugs sector.

Smith New Court is forecasting pounds 583m pre-tax profits for Zeneca in the current year, up from pounds 102m - after pounds 304m of exceptional items - last time.

That estimate puts the shares, at yesterday's closing price, on a prospective multiple of almost 15 times earnings, falling to 13.4 times for the rights shares.

David Barnes, Zeneca's chief executive, admitted that the yield was at 'the higher end of the spectrum'. But he added: 'I am quite content in my mind that the price is a fair and sensible one.'

After paying the pounds 1.3bn rights proceeds to ICI, Zeneca will be left with borrowings, net of cash, of pounds 391m or 25.7 per cent of net assets.

Included in that figure is pounds 623m still due to ICI, which is repayable at ICI's option after June 1995. New ICI borrowings - excluding the funds due from Zeneca - will be pounds 1.1bn, or 27.8 per cent of net assets.

The demerger documents also reveal that Ronnie Hampel, ICI's chief operating officer, will get a 25 per cent increase in salary to pounds 425,000 when he takes over as chief executive of the new ICI.

Mr Barnes will be paid pounds 325,000 by Zeneca, pounds 40,000 more than he earned at ICI, while Sir Denys' pounds 515,000 salary will be split between the two companies.

The directors of both companies will also participate in a bonus scheme, based on achieving profit and cash generation targets, although the full details of the scheme were not disclosed.

The demerger proposals were first announced last July - just two months after Hanson, the acquisitive conglomerate, had sold its 2.8 per cent stake - although it was not formally given the go-ahead until February. Under the terms of the split investors will be given one new Zeneca share for each ICI share held.

Most in the City are more enthusiastic about new ICI than Zeneca, where there is concern both about the quality of its drug portfolio and the impact of health reforms proposed in the US.

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