Coats Viyella may sell division

COATS VIYELLA, the clothing and textiles manufacturer, yesterday announced that it was in talks to offload its precision engineering division.

The company said that since deferring the demerger of the Viyella business, the group has received several approaches for its precision engineering division, and discussions are in their early stages with a number of potential buyers.

The strength of sterling has eroded the company's competitiveness. It posted a loss of pounds 30m for the six months to June, compared with profits of pounds 24m the previous year.

A demerger of Coats and Viyella, with Coats planning to retain the precision engineering unit and eventually float it, was announced earlier in the year, but was postponed in September due to market turmoil.

Kazia Kantor, group finance director, said: "The credibility of the interested parties and the size of their financial resources means a sale will exceed the value that a demerger could yield for our shareholders."

The decision to sell rather than float has intrigued analysts, and has lead to speculation that a large financial institution or international player has come to the table.

Any bid would have to be significantly above market value, since a sale would see Coats incur a pounds 50m withholding tax charge in the US.

Analysts are negative about the company, whose poor management has presided over a fall from the FTSE-100, and a 90 per cent drop in market value over the past four years.

However, one analyst maintained that at 24p per share, a 9 per cent rise on the day, it did have latent value. "The precision engineering division is its best business, and worth roughly pounds 200m. With the market capitalisation currently at pounds 165m, the break up value must be at least 50p per share."