In the biggest shake-up since the group was founded in 1926, ICI will create a new company, Zeneca, housing its interests in pharmaceuticals, agrochemicals, seeds and specialty chemicals. As part of the demerger, Zeneca will simultaneously make a pounds 1.3bn rights issue that will be largely used to repay debt owed to its parent.
The new ICI will start off with pounds 600m of debt - the bulk of that to be repaid by Zeneca over time - while Zeneca will have pounds 400m of borrowings.
Last July ICI said it was considering proposals for the division of the group into two separate companies. The move came just two months after Hanson, the acquisitive conglomerate, disposed of a 2.8 per cent stake, although the group maintains that the demerger plans were being discussed before Hanson appeared on the share register.
Sir Denys Henderson, chairman, said the demerger would produce 'two powerful, focused companies able to concentrate even more on strengthening their leading positions in world markets'.
Ronnie Hampel, chief operating officer, denied that the combination of demerger and job cuts would be damaging to ICI. 'We are not about destroying ICI. There are a dozen sectors of growing opportunity in the new ICI. We spread our jam too thinly in the 1980s and have now taken a robust view of peripheral and underperforming assets.'
David Barnes, who will be chief executive of Zeneca, played down fears that the stock market's appetite for drug companies had faded or that Zeneca would be too small to compete. 'There is a touch of over-nervousness about pharmaceutical companies. The demerger is driven by industrial logic, not short-term sensitivities.'
News of the demerger and rights issue, which had been widely expected, was overshadowed by the pounds 949m exceptional charge - the second in two years - which is designed to cut pounds 300m of costs by 1995. The last bout of rationalisation, announced with a pounds 300m provision in 1991, is now almost complete. It produced savings of pounds 290m last year, expected to rise to the pounds 400m target by the end of the year. It also cost 21,000 jobs, although about a fifth of those were transferred with businesses sold, of which 12,000 were in Britain.
Of the 9,000 jobs to go in the next two years, 1,000 will be through disposals. The losses will be split equally between the UK and overseas with 7,000 leaving ICI and 2,000 going at Zeneca.
The demerger announcement came as ICI disclosed its annual results, which demonstrated the effects of the world recession on the business. Its industrial chemicals division swung from a profit of pounds 135m to a deficit of pounds 24m. Group pre-tax profits of pounds 843m became losses of pounds 384m.
In pharmaceuticals, the core of the new Zeneca, trading profits were down by pounds 44m to pounds 494m mainly because of generic competition to its Tenormin heart drug in the US, where new prescriptions written fell by 50 per cent. Specialty chemicals held profits at pounds 177m.
Despite the loss, ICI is maintaining its dividend at 55p a share with a second interim dividend of 34p. ICI's earnings before the exceptional charge were 48.8p.
Sir Denys said the ICI board decided to pay an unchanged dividend because of past and future restructuring actions and the fact that the industry was very close to the bottom of the chemicals cycle. 'We believe that we shall see some cyclical improvement perhaps more strongly in the second half as the American economy strengthens.'
The dividend will also be maintained in the current year, split between the two new companies, which will pay 27.5p each.
The demerger was well- received in the City and ICI's shares rose 70.5p to pounds 11.52 1/2. Analysts estimate that, after the demerger, shares in the two groups could be worth more than pounds 12, with Zeneca priced at about 695p and new ICI at 525p.
The demerger does, however, mean that ICI is likely to leave its landmark office at Millbank just along from the Houses of Parliament. Mr Barnes said he would be 'disappointed' if Zeneca was still there in a year's time, and it is believed that new ICI will also eventually look for new offices.
Of the pounds 949m exceptional charge, pounds 516m is for redundancy costs and asset write-downs; pounds 148m provisions for environmental costs, mainly relating to the Stauffer agrochemicals business; pounds 191m for losses on closure or sale of businesses; and pounds 75m for the costs of the demerger.
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