Imperial Chem Back From The Brink

Imperial Chemical Industries this week set about creating a new ICI for a new century'' when it announced an £8 billion jamboree of acquisitions and disposals. Investors were delighted - but it was the financiers' hour. For what the company has pulled off, through aggressive wheeling and dealing, is a solution to a case of terminal decline. Over 70 years, ICI has been true to its name. It has lived through imperial, chemical and industrial phases, each in turn.

At the beginning of last week, however, it faced its nemesis - in the form of a progressive exit from a clutch of mature businesses. By Wednesday last week, it had changed its future. And, by buying in as it sells off, it has begun a fourth age as a commercial company. Formed in 1926, through the merger of Britain's largest chemical producers, the group began life as an imperial alliance. Indeed, so imperial was it that for, the next 20 years, it ran an agreement with the giant DuPont Corporation of the US under which they divided the globe into regional monopolies.

In 1948, competition law put paid to this regal carve-up. But not to the company's global dominance. By then, it had begun its chemical, or technological, age. In quick-fire succession, ICI delivered a plethora of science-based novelties.

These ranged from polythene and perspex to an anti-malarial drug called paludrine. By the 1970s, part of the company was moving into its industrial phase. A high-technology business continued to thrive as the group's pharmaceuticals division but, elsewhere, once-patented products had turned into commodity chemicals traded in bulk - and, sometimes, at minimal profit.

ICI's efforts to run both types of operation eventually made it vulnerable to takeover, with the value of its vibrant science-based business discounted by the stock market to reflect the difficulties inherent in the industrial business.

Things came to a head in 1991 when the acquisitive Lord Hanson set his sights on ICI. He was repelled. But his attack rattled the group's management and precipitated its 1993 demerger into two companies: the life-science group Zeneca, which makes drugs and complex patented chemicals, and ICI, the industrial rump.

At that time, Sir Ronald Hampel, then chief executive, promised a new life for ICI. In five years, he said, it would look very different. Already, the idea of a new commercial phase was in place. Yet, it was not until three weeks ago that ICI's management finally knew that the transition would come to fruition.

In 1994, the group recruited Unilever director Charles Miller Smith as its chief executive. Reared in a company culture where marketing was paramount, his first move on joining ICI was to review its activities with management consultants McKinsey.

The outcome was a decision to move towards consumer chemicals, and away from the industrial products that formed the group's backbone. ICI identified a list of potential acquisitions - and Unilever's chemicals division was one of them. But when it approached the household products group last year with an offer, the answer was no. Instead, Unilever announced a public auction of the business.

Four weeks ago, ICI moved in again with a higher offer. This time, with the promise of completing a deal six months sooner than any other rival could manage, ICI won the day, and the £4.9 billion acquisition is now at the heart of its transformation.

The Unilever division, with sales last year of £2.93 billion, makes speciality chemicals for very specific uses. Typical are the coatings for the Pentium chip, or the glue for disposable nappies. The businesses it contains are far more profitable than ICI. They are growing more quickly and are managed with an eye to marketing and the development of applications.

By contrast, ICI's strength is in manufacturing efficiency. To help finance the acquisition, which has left it highly indebted, ICI is selling £3 billion of its industrial businesses. Its majority stake in ICI Australia will account for more than a third of this, and the sale is likely to include all of the explosives subsidiaries as well. The company also hopes to raise £700 million by selling its Tioxide business, which makes the pigment used in paints and plastics. In addition, it is expected to announce soon an alliance that will reduce its involvement in the production of polyester, with fertilisers and chlorine likely to follow.

Thus, the new'' ICI begins its life as a trading company with a period of frenetic buying and selling of businesses. The degree to which it succeeds in this will colour the stock market's expectations of its future performance. Already, though, this fourth re-invention means that ICI will not have to leave its glorious Millbank headquarters, near the Houses of Parliament, sans everything''. Instead, it has created a future built of glue, paint and food ingredients.