ICI surges on £1.2bn sale of fragrance division

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The Independent Online

ICI, the Dulux paints to food additives group, delighted shareholders yesterday by raising £1.2bn from the sale of its troubled Quest fragrance and flavours division to a European rival.

The proceeds will be used to help close the deficit in the group's pension fund and eliminate ICI's remaining debt, enabling it to expand its paints and National Starch businesses.

The buyer is the Swiss-based Givaudan which will use Quest to strengthen its position as the world's leading flavours and fragrance company. Once the deal is complete, Givaudan's market share will rise to about 27 per cent.

Although the two sides do not expect any regulatory complications, Givaudan has taken the risk of the competition authorities intervening by making the deal unconditional on approval from anti-trust authorities in Europe and the US.

ICI shares rose 9 per cent on the back of the deal to a fresh five-year high of 423p, valuing the company at £5bn, as traders speculated that the group could now become more vulnerable to a private equity takeover.

But industry insiders pointed out that, even after the Quest deal was completed, ICI's pension deficit would still stand at £1bn while its total pension liabilities remain close to £10bn which would deter many private equity bidders.

The sale of Quest means that ICI has now disposed of about half the Unilever speciality chemicals business which it bought for £4.9bn in 1997. In September, it sold Uniqema, which makes fatty acids for use in lubricants and personal care products, to Croda International for £410m.

Long-running manufacturing problems at Quest which surfaced after the deal with Unilever eventually claimed the scalps of ICI's former chief executive Brendan O'Neill and fellow board member Paul Drexler in 2003. Even now, its profit margins are well below those of competitors such as the US-based International Flavours and Fragrances.

Mr O'Neill's successor, John McAdam, said the Quest disposal would allow ICI to accelerate investment in its remaining paints and adhesives businesses. It will also free up ICI to make acquisitions. Its last big deal was the 1998 purchase of Williams Holdings' DIY division, which brought names such as Polycell, Cuprinol and Hammerite under ICI's roof.

Of the £1.2bn in gross proceeds from Quest, £900m will be used to pay down debt, £230m will be injected into the pension fund and £70m will be used to cover costs relating to the deal.

ICI has recently embarked on a fresh rationalisation programme to cut a further 2,300 jobs by 2011, which will cost it £340m.

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