View from City Road: Story starts now for ICI and its offspring

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The launch of the Zeneca rights issue formally started the process of breaking up Britain's largest manufacturer, its biggest chemical company and one of the few businesses equipped to compete on a global scale. The two new ones being created will hardly be minnows. Based on yesterday's grey market prices, both Zeneca and the new-look ICI will be among the top 30 British companies, worth pounds 6.3bn and pounds 4.4bn respectively. Zeneca will be one of the top 15 drug companies and among the top three agri-chemicals suppliers in the world. New ICI will also be a powerful force in the chemical industry, ranked among the world's top 10.

Sir Denys Henderson, chairman, and his team may feel they have done well to get this far, but the real test of the demerger has yet to come. To be judged a success, the two companies must reverse the climate of decline that dogged ICI for most of the 1980s, leaving its shares worth just 60 per cent of their value at the beginning of that decade, relative to the market, and a chemical business that was every bit as buffeted by recession this time round.

There are signs that the culture is already changing. A rigorous cost- cutting and disposal programme has left ICI less battered by recession than its European competitors. The demerger itself is proof that the group realised radical change was needed. For it to be judged a success, the two companies need to be at least as radical. New ICI needs to continue its restructuring, with particular focus on the appalling returns generated in its industrial chemicals and regional businesses. More importantly, having jettisoned its drugs arm - one of the few world-class businesses that it managed to grow from scratch during the 1980s - it needs to demonstrate that it is prepared to invest in the growth industries of the future.

Zeneca needs to prove that the City's antipathy towards it is misguided. It needs to show that the hype it has given its product pipeline is justified, by bringing new drugs to the market quickly and successfully.

Zeneca has been slightly handicapped by being forced to start life with a 27.5p dividend, more than half its earnings and high for a research-intensive drug stock. But it should not complain too much - the resulting 5.7 per cent yield on the rights issue shares is one of the key reasons for taking them up.