INSIGHT: ICI at 80 - still fit for the future?

08 December 2006 16:45  [Source: ICIS news]

LONDON (ICIS news)--For an eighty year old, ICI is still pretty sprightly. Indeed in the past few years, the company has gained a new lease of life.

The 2003 performance and management crisis is well past. The upcoming divestment of the flavours and fragrances business Quest will greatly ease the twin burdens of debt and pensions.

ICI was eighty years old on Thursday (7 December). So with a spring in its step the smaller and more focused group can face the future. But given the recent changes – this year alone the divestment of Quest and the oleochemicals business Uniqema – it comes as no surprise that speculation about the group’s future is rife.

A virtually debt free company with significantly reduced pension liabilities and businesses focused on performance as well as growth is highly attractive. And ICI is one of dwindling number of alluring chemicals sector investment opportunities.

ICI watchers will not be hard pressed to find synergies with other industry players. The opportunities for managers other than the present incumbents to drive down costs though may be less apparent.

The jewel in ICI’s crown is paints but its National Starch adhesives and other starch-related businesses are also precious. Analysts have suggested that any potential buyer would have to pay a hefty premium to acquire the company but that synergies might make that possible.

ICI and Akzo Noble have been linked – at least in speculator’s minds. Also, a senior executive at the Netherlands based coatings, chemicals and drugs firm, not so long ago called ICI a “beautiful company”.

Akzo Nobel intends to spin off its Organon healthcare business. Its coatings operations are largely industry-oriented although it owns the Crown decorative paints brand. Any link between the two companies would provoke significant anti trust interest.

For ICI, the future minus Quest – the business that got it into so much trouble in 2003 – could be quite exciting. ICI has the capacity now to grow more in the way it wants. Chief financial officer, Alan Brown, speaking at the ICIS/Merrill Lynch 10^th Chemical Industry Finance & Investment conference late last month, said ICI wanted to grow in paints and in starch in India. Paints in Asia and Latin America are also areas of focus.

ICI can’t be expected to grow too fast: it probably doesn’t want to and is not particularly able to.

Growing in paints and coatings is not easy even though both markets remain highly fragmented.

ICI’s National starch is a good business where market niches are hugely important. Getting growth in that business right is a key challenge.

Brown admitted that the disposal of the Quest business came faster than ICI anticipated but that it better placed the company to grow in paints and adhesives.

Whether there is room for more far-reaching merger and acquisition activity remains to be seen 

ICI is operating up to industry standards although the need to transform operations to best in class is acknowledged.

ICI was created in the 1920s to combat the growing influence of companies like DuPont and Allied Chemical from the US as well as to try to catch up with the mighty German chemicals makers.

The merger of Brunner, Mond; Nobel Industries; United Alkali and British Dyestuffs created a hugely influential company. The transformation of the business in recent years has been closely watched by the rest of sector although not always approvingly.

ICI’s managers and owners have tried to match the challenges facing the industry and its companies in the late 20^th and early 21^st centuries. Whatever the new, now slimmed down ICI, becomes it has to be made be fit for the future.

By: Nigel Davis
+44 20 8652 3214

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