ICI eyes buy-ups with £1bn war chest

ICI, the Dulux paints to adhesives and starch group, has a £1bn war chest to spend and is eyeing acquisitions in the developing markets of eastern Europe, Latin America and Asia.

The company, which yesterday reported an 8 per cent increase in underlying pre-tax profits last year, said that after the £1.2bn sale of its Quest flavours and fragrances division it would have net cash, allowing it to embark on a series of targeted acquisitions or one big deal.

Alan Brown, ICI's finance director, said the group was particularly interested in strengthening its presence in eastern Europe but was also looking at countries such as China, Indonesia and Thailand.

The European coatings and paint maker Sigma Kalon is due to be put on sale this year by its private equity owners Bain Capital and is likely to be valued at around €1.8bn-€2bn. ICI could be among the bidders.

There is also speculation, however, that ICI itself could be bought by a private equity firm or trade buyer, with the latest rumours centred around a bid from the rival Dutch speciality chemicals company Akzo Nobel, which reports results itself next week.

John McAdam, ICI's chief executive, refused to be drawn on the persistent bid rumours, saying: "Our business is to run the company. We have got a good plan and we are now in a position to get on the front foot."

The turnaround at ICI has seen its net debt come down from a peak of £4bn in 1999, after the acquisition of Unilever's speciality chemicals division, to just £329m as of December 2006. In the past 12 months, its shares have risen 36 per cent, comfortably outperforming the market. The Quest proceeds will give it net cash and also bring its pension deficit down to less than £1bn. It could take on £1bn of debt while still retaining its credit rating, said Mr Brown.

Pre-tax profits rose to £407m last year from £377m in 2005, with strong performances in most of ICI's markets apart from the US, where paint sales were hit by the slowdown in the housing and building markets.

Raw material price rises, a bugbear for ICI in the past because of the time lag in passing them on, were kept to 4 per cent and the group said it expected a slight easing of inflationary pressures in the coming year.

The only legacy business which remains from ICI's days as a bulk chemicals producer and economic bellwether is its PTA operation in Pakistan, which has highly volatile profit margins. Political sensitivities have so far prevented the sale of the business. Reliance of India would be a potential buyer if it were not for the strained diplomatic relations between the two countries.