Inchcape plans split-up to halt shares slump

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The Independent Online
Inchcape, the distribution and marketing group, yesterday announced plans to break itself into three parts in an attempt to reverse the recent slide in its share price.

The company, which has been hit by upheaval in its Asian markets, plans to spin off its Latin American Coca-Cola bottling operations and its Asian marketing division as separate companies, leaving Inchcape to concentrate on its main motor distribution business.

At the same time, Inchcape said it was in talks to sell its Russian bottling operations, which have been suffering heavy losses, to Coca-Cola.

Its shipping business has also been put up for sale as part of the plans which will see it sell or spin off about 20 per cent of its businesses.

After the disposals and demergers are completed next year, Philip Cushing, the chief executive and Les Cullen, the finance director, will leave the company. Sir Colin Marshall will stay on as chairman of the remaining motors business, which will retain the Inchcape name.

The demergers complete a huge restructuring programme initiated by Sir Colin when he took over the helm of the company two years ago. In that time, Inchcape has sold Bain Hogg, the insurance broker, and its testing services business, and spent millions reorganising its remaining operations.

However, the shares have failed to respond to the changes. When the Asian crisis hit they slumped to a low of 137p, down from a 307p in May, Sir Colin said: "The demergers and divestments are designed to deliver to shareholders the true underlying value of the Group, which we do not believe is reflected in the current market price."

Mr Cushing said that the complexity of Inchcape's three businesses had confused investors. "Removing the cloak of diversity will allow shareholders to make more informed decisions."

The City welcomed the move, pushing the shares up 22.5p to 211p on the news. Analysts calculated that, valued independently, the three businesses produced a sum of the parts valuation of at least 250p per Inchcape share. "It's quite revolutionary," said Tony Shepard, analyst with Greig Middleton & Co. "Obviously there is value there and they are hoping to realise it."

Inchcape plans to float the Latin American bottling operations on the Chilean stock exchange later this year. Mr Cushing said the move made sense because the Chilean Stock Exchange already plays host to several similar businesses, all of which trade on price/earnings multiples "in the 20s." Last year, Inchcape's bottling unit made operating profits of pounds 13m, though this included pounds 17m of start-up losses in Russia.

Inchcape acknowledged that British shareholders, who own 80 per cent of the company's shares, would probably not want to own shares in firms listed in Chile and Asia. However, the company said it would do "whatever is necessary" to make sure that shareholders could participate in the companies. And analysts said that a flotation may not be necessary, as Inchcape might be able to sell the businesses to trade buyers.

Inchcape's board first discussed splitting the company up last year, after deciding to concentrate on the main motor distribution operations. Asked why he had effectively worked himself out of a job, Mr Cushing said: "When I took over I expected to be in charge for many years. But I have to accept the conclusion that we no longer need a chief executive."

Outlook, page 21

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