All change again

Everyone knows ICI. Huge company. Posh offices somewhere near the Houses of Parliament. Makes plastic, paint and stuff. Not very exciting, though. A bit staid.

Recent events have proved everyone wrong.

The company's £5billion acquisition of the speciality chemicals wing of Unilever has swept away the fusty preconceptions. Once chief executive Charles Miller Smith has completed the swathe of disposals needed to finance the hulking debt his company has incurred, ICI will no longer be recognisable. It'll be as far removed from the traditional heavy chemicals manufacturer as it's possible to be.

The deal, which underscore's ICI's determination to shift downstream, has been in the pipeline for some time. ICI confirms that it first began talks with Unilever 18 months ago, long before the businesses had been put onto the market. `When Unilever announced, after a strategic review, that the Specialty Chemicals businesses were to be auctioned ICI was well prepared to move quickly,' it comments.

Ironically, the main effect of the acquisition will be to tip ICI back towards the speciality products that it offloaded when it demerged Zeneca five years ago - the thinking then was to allow two disparate companies to focus on their `core competencies' without the distractions of the other. In fact, the acquisition almost resembles a reverse takeover, with Miller Smith choosing to dump old, established ICI core competencies in favour of his own - he worked in, and ran, many of the newcomers during his 30 year tenure at Unilever until 1995. Many of the traditional ICI businesses are being ousted in favour of the Unilever newcomers, with the proceeds being used to pay off the $8billion loan that ICI is using to finance the acquisition.

The incoming businesses are National Starch, which turns starch into a wide range of industrial adhesives, speciality starches, synthetic resins and polymers; Quest, a fragrance, flavour and food ingredients company; Unichema, which specialises in fatty acids and their derivatives, used in personal care products, polymers and synthetic lubricants; and Crosfield, which makes speciality silicates, zeolites and silicas. The four companies garnered revenues of £2.9billion last year, with operating profits of £357million (see chart).

One of the few things they have in common with the traditional ICI businesses is their international dimension, with only 2500 of the total 15 000-strong workforce based in the UK, mostly with Crosfield. Quest and Unichema are both Dutch-based, while National Starch's headquarters are in the US. This aside, there is hardly any synergy between ICI and Unilever Specialities, and the only integration between the new and old businesses will be to combine Unichema and ICI Performance Chemicals. Unusually for such a large acquisition, ICI expects that the purchase will have a `neutral to positive effect on earnings' immediately, and will definitely enhance the bottom line in the first full year after acquisition.

On the disposals side, ICI is aiming to raise £3billion over the next three years. The divestments already announced - property sales worth some £300million, Tioxide, the titanium dioxide pigments producer whose demerger was announced at the company's annual results presentation - should raise a little over £1billion. The announcement of the Unilever acquisition was accompanies by the news that the company's 62.4 per cent shareholding in ICI Australia is also up for grabs - this should fetch another billion. Further divestments are therefore `certain', an ICI spokesman confirms.

ICI's comment that the merger creates `a formidable force in worldwide coatings, materials and specialty chemicals' implies that its divisions outside these areas - industrial chemicals and explosives - might find themselves under new management. Explosives may be swapped for ICI Australia's paints business, which the company would like to keep on board as part of its ambition to paint the world.

This leaves the deeply cyclical chemicals and polymers business, whose perils were well illustrated last year, as a worldwide polyester surplus led to a 20 per cent plunge in profits. The company's chlor-alkali business and the fertiliser concern are also in this division.

Ronnie Hampel, ICI's chairman, seemed to detail his company's new priorities in his acceptance speech receiving the Society of Chemical Industry's Centenary Medal, before the sale was announced. `[European chemical industry executives] have persevered in spite of experience, believing they can continue to do what they've been good at, providing they can keep their costs down,' he said. `Well, they can try going that way, but the European market will not grow quickly enough for success here. The real growth and healthy rewards in the post-industrial age will be in micro-electronics, in biotechnology and new materials science industries, in fine chemicals and in performance chemicals.'

One new addition in terms of people is James Kennedy, president and chief executive of National Starch, who is to join the board of ICI. The management teams at the other specialities businesses are to be left intact, thanks to what ICI describes as their `outstanding track records of financial performance and growth.'

The way things are going, the only thing that's familiar and cosy about ICI will be Miller Smith's trademark comfy cardigans.

{{What ICI is getting

Unilever Specialty Chemicals, 1996

Division Sales/£m Op profit/£m

National Starch 1555 213Quest 696 69Unichema 476 43Crosfield 205 32

Total 2932 357

Source: ICI}}