ICI moves into South America

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The Independent Online
Magnus Grimond

Imperial Chemical Industries is to become South America's leading decorative paints group after agreeing to pay $390m (pounds 255m) for Bunge Paints. The deal comes just weeks after the UK chemicals group signalled its readiness to step up its acquisitions strategy after revealing a potential pounds 2bn- to-pounds 3bn war chest at the time of its annual results.

The latest deal takes ICI's paint sales close to 1.2 billion litres a year, the first time any company has exceeded 1 billion litres. Based in Sao Paulo in Brazil, Bunge produced 200 million litres of paint last year, equivalent to the whole of ICI's continental European operations, with a sales value worth over $400m.

From being hardly represented in the area, ICI will gain leading market positions in the countries comprising the Mercosur countries - Brazil, Argentina, Uruguay and, through a joint venture, Bolivia. Bunge will give it strong brand names such as Coral, Alba and Inca, ICI said.

The British group is paying $295m in cash, with the balance of the acquisition represented by the assumption of debt. Bunge had net assets of $145m in 1994, when it made profits of $55m. However, profits were lower last year, hit by pressure on margins caused by rising raw material prices and restructuring charges.

ICI chief executive Charles Miller Smith said the Bunge acquisition was exactly in line with the strategy of expanding the paints business in the fastest growing areas of the world. It would provide "a sound platform on which ICI Paints can build a growing and profitable business in the Latin American region." The impact on ICI's earnings will be neutral in the first year and thereafter it would add to earnings, he said.

The seller is Bunge Group, a private Bermuda-registered agribusiness group with operations mainly in Argentina and Brazil. The deal follows a period of expansion for ICI's paints operation, which acquired Grow Paints and Fuller O'Brien both of the US last summer. The business saw profits dip from pounds 122m to pounds 107m last year and is currently the subject of a profit improvement programme.

ICI also announced that Hon Chiu Lee, chairman and managing director of Hysan Development Company of Hong Kong, has been appointed a non-executive director. Mr Lee is a non-executive of several leading Hong Kong companies including Cathay Pacific Airways, Hang Seng Bank and Sime Darby Hong Kong. He has good connections with mainland China, serving on the consultative council, and his appointment will be seen as part of ICI's attempts to expand in the area.