ICI shake-up plan sends shares soaring

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The Independent Online
IMPERIAL Chemical Industries yesterday heralded one of the most dramatic restructurings in British corporate history when it announced that it was planning to break itself in two.

The group is proposing to siphon off its drugs, agrochemicals, seeds and speciality chemicals business into a new company, to be called ICI Bioscience, leaving its commodity chemicals businesses, paints and explosives in the existing company.

Sir Denys Henderson, chairman, said: 'I see this as a very positive and constructive proposal for the future of ICI. It would enable us to respond better to economic conditions and to the changes in the shape of the chemical industry; changes which I regard as now both necessary and overdue.'

The demerger is the most radical step in the restructuring programme implemented by ICI at the beginning of 1990. It was greeted with enthusiasm by the City, which saw it as confirmation that the group is determined to shrug off its reputation as a lumbering giant, whose management has more in common with the Civil Service than with entrepreneurial executives. Its shares soared to pounds 12.29, although they fell back later in the day to close 76p higher at pounds 11.71.

Based on 1991 figures, ICI Bio would account for 70 per cent of the group's pounds 1bn trading profits, but only 31 per cent of its pounds 12.5bn sales, and would take 35,500 of its 88,100 employees worldwide.

Sir Denys will chair both businesses, in effect taking a non-executive role. David Barnes, currently director for the Americas and Europe, will be chief executive of ICI Bio, while Ronnie Hamper, chief operating officer, will become chief executive of the remainder.

The details of the demerger, including how the pounds 7.6bn of assets and pounds 2.4bn of debt would be split, are still being worked out with S G Warburg, its adviser. However, ICI Bio may raise new funds by issuing shares at the time of the demerger, which analysts took as an indication that it would take the larger share of the borrowings.

The proposals come two months after Hanson, the industrial conglomerate, killed bid speculation by selling a 2.8 per cent stake acquired in May 1991. Hanson is believed to have been encouraging ICI to float its pharmaceutical division as a way of increasing the value of the group.

That suggestion was, however, dismissed by ICI, which claimed that there were synergies between the businesses, pointing out, for example, that the technology for replacements for ozone-depleting CFC gases was developed in the pharmaceuticals division.

But Sir Denys said yesterday that there was an 'increasing divergence' between the bioscience businesses - which specialise in high added-value products, such as genetically-engineered seeds, Tenormin, the heart drug and Quorn, the high-protein meat substitute - and the plastics, paints and commodity chemicals, where the markets are more mature.

Mr Hamper said research in bioscience - which will account for pounds 450m of the pounds 700m to be spent this year - was integrated, so floating pharmaceuticals alone would have disadvantaged the remaining businesses.

Analysts were speculating that the two businesses could be worth more separately than together. If ICI Bio attracts a rating similar to that of rival drug companies such as SmithKline Beecham, it could be worth more than pounds 7bn, compared with ICI's current value of pounds 8.3bn, while the rump of the business could be capitalised at more than pounds 2.5bn.

The demerger proposals were unveiled as the group announced that pre-tax profits in the first half of the year fell 17 per cent to pounds 507m as the recession continued to bite in most of its markets. Earnings fell 14 per cent to 39.9p a share, but the dividend was held at 21p.

Hamish McRae, page 19

View from City Road, page 21

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