David Smith buys Spicers for pounds 95m: Purchase of envelope maker marks move away from cyclical paper making

DAVID S SMITH, the fast-growing paper and packaging group, is moving into stationery with the pounds 95m purchase from Svenska Cellulosa of Spicers, Britain's second-largest envelope maker and biggest wholesaler of office products.

Spicers is a business well known to Peter Williams, chief executive, and John Miller, finance director. They led the management buyout in 1988 of Reedpack, Spicers' former owners, which was sold to the Swedes in 1990 for pounds 1.04bn, netting Mr Williams a pounds 5m profit.

Mr Williams said yesterday that Svenska, which had valued Spicers too highly when it bought Reedpack, had been trying to sell it ever since. It had taken so long because Svenska had been asking an unrealistic price - originally in the region of pounds 275m.

'Spicers provides us with an opportunity not only to acquire a market leader but to do so at a price that undervalues its long-term potential.'

Since Reedpack was sold to Svenska the combined UK profits of Spicers' stationery wholesaling and manufacturing operations had more than halved from more than pounds 25m to pounds 12m. Manufacturing was barely breaking even after a vicious envelope price war led by the Swiss-owned John Dickinson, market leader and formerly part of DRG.

Spicers also ran into trouble in France where, ironically, Mr Williams first set up two regional stationery wholesalers in 1990 just before Reedpack was sold. Last year the French operation lost pounds 5m before a bad debt write-off of pounds 2.7m, and losses are still high.

Despite its recent history of collapsing profitability, Spicers is seen as a further move by Smith away from cyclical paper making, which would account for 28 per cent of a combined pounds 810m sales total against the current 44 per cent. The French problems mean that Spicers will marginally dilute earnings this year but will contribute in 1993/4. Spicers also generates surplus cash, which will help Smith in its current heavy capital spending programme on a new paper mill.

Eighteen months ago the company bought the French Kaysersberg Packaging for pounds 154m. This has proved highly successful, generating operating profits of pounds 24.2m in its first full year and masking the effects of a one-third fall in UK paper-making and packaging profits.

Smith, which is placing 31 million new shares at 305p to raise pounds 92m, estimated it made pounds 27.1m before tax and exceptionals in the year to 1 May, against pounds 24.1m. It is recommending a total dividend of 10p against 9.5p, with a final of 7.25p.

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