Outlook: Arjo Wiggins

CALLING THE bottom on a sinking share price can be a hazardous business. When a company in trouble protests that things cannot possibly get any worse, they usually can - and do. But Arjo Wiggins Appleton, the paper maker, which yesterday announced plans to split itself into three divisions, could just be an exception to the rule.

Not that the omens are good. Arjo is a text-book example of how mergers - especially cross-border ones - go wrong. The trouble started in 1990 when Wiggins Teape of the UK joined forces with its American rival Appleton, both of which had been spun off from BAT in its successful attempt to fend off a breakup bid from Sir Jimmy Goldsmith.

A year later they were joined by a French partner, Arjo Mari-Prioux. But the businesses were never integrated properly and continued to be run as fiefdoms inside a loose structure. So when paper prices bombed, Arjo was left with a much higher cost base than its rivals.

As a result, this menage a trois has destroyed shareholder value on an epic scale. Since the original merger, pounds 1.5bn of capital has been sunk into a business which is now capitalised at just pounds 919m. This decade, Arjo shares have lagged the rest of the market by a staggering 80 per cent.

So can Ken Minton succeed where others have failed? The former chief executive of Laporte, the chemicals group, is reorganising Arjo into three divisions in a belated attempt to squeeze out some cost savings. The declining carbonless and thermal division, which makes paper used in credit card slips and fax machines, and the merchanting unit will then probably be sold, leaving Arjo to concentrate on premium fine, speciality and coated papers. Chief executive Phillippe Beylier is surplus to requirements and walks out with the customary payoff.

Arjo's accounts will be stained with plenty of red ink before the process is complete. But if Mr Minton succeeds, the potential upside is big - analysts reckon a buyer would be willing to pay pounds 600m for the merchanting division alone. Regardless of the history, investors may find it worth their while to take another look at Arjo.

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