The news knocked almost 10 per cent off ICI's share price, wiping out most of the gains the stock made last week after its chief executive, Charles Miller Smith, sought to reassure investors about its strategy.
The sale of Crosfield, one of four speciality chemicals businesses bought from Unilever for pounds 4.9bn last year, was abandoned after the buyer, WR Grace, said it was not prepared to accept the conditions attached by the US Federal Trade Commission.
The deal was one of two sell-offs, with a combined value of pounds 1bn, waiting for approval from the Federal Trade Commission. The other is the disposal of ICI's US Tioxide business to Du Pont.
The collapse of the deal will hamper ICI's ability to reduce its pounds 4.3bn of debts and was greeted with despondency by the markets. ICI shares closed 50p lower at 474p, valuing the group at pounds 3.45bn. Since a profit warning in July, ICI has more than halved in value. An ICI spokesman said: "Crosfield remains a profitable cash generating part of the ICI group and options for the future of the business are being developed."
Dealers questioned whether ICI would be able to sell Crosfield for the same amount given the plunge in world markets, suggesting that the business would need to remain within the ICI portfolio.
In his speech to a chemicals conference in New York last week, Mr Miller Smith said ICI's disposal programme had so far raised pounds 3bn and he expected this to reach pounds 5bn once the sale of its remaining bulk chemicals businesses had been completed.
But the pounds 5bn figure included the $455m ICI had expected to raise from Crosfield. The collapse of the sale will affect ICI's ability to strengthen its balance sheet by reducing its debt levels.
At the peak, its debts were pounds 6.3bn last year and although that figure is now down to pounds 4.4bn, interest cover is only just over two times earnings. Mr Miller Smith said the target was to get interest cover back to between five and six times earnings and not allow it to fall lower than four times earnings.
The main industrial chemicals businesses left to sell are the petrochemicals business at Wilton on Teesside and the chlorine operations at Runcorn in the North-west. ICI also plans to float its profitable engineering service business. The industrial chemicals businesses have sales of pounds 2bn.
"We remain confident we will find good buyers for the remaining bulk assets," said Mr Miller Smith.
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