Thursday, December 20, 2012

Courtaulds Plans To Break Itself Into Two Pieces

More on the demerger in March 98:
  • Akzo Nobel and ICI looking at the International Paints business
  • Lenzing merger not ruled out for Fibres ("its a possibility but we are not actively talking about it", said Lenzing)
  • Tencel losing money and capacity set to double in a couple of months.
  • Polyester/cotton can now match Tencel's aesthetics in fashion apparel.
  • 500 jobs to go mainly in Fibres R&D (a good time to start a consultancy).
Courtaulds, which has been a subject of takeover speculation in recent months, announced last week that it is breaking itself up into two separate operations, with a third being sold off.

The company is making its coatings and sealants business, which in the financial year ending March 1997 had sales of £983 million ($1.6 billion), into a separately listed operation to be called International Coatings PLC.

The fibers and chemicals activity, with sales in 1996/97 of £874 million including the troubled viscose business, will continue to trade as Courtaulds PLC.

The polymer products operation, with sales last year of £228 million in packaging, mainly laminate and plastic tubes, and in performance films, is being sold because it would not fit comfortably with either of the two new independent entities.

"It has become apparent that the current structure of Courtaulds has impeded our efforts to release shareholder value," says Gordon Campbell, Courtaulds chief executive. "The separation will enable both (the coatings and fibers)

businesses to pursue opportunities which would have been difficult for them as part of a more diverse group."

He estimates that due to the economic crisis in Asia and the strength of sterling, the company's operating profit will fall by 20 percent to £132 million in its current financial year.

"1997 proved a particularly difficult year," Mr. Campbell says. "It has, however, concentrated minds on our strategic options and the need to free the two businesses to pursue with vigor their individual strategies."

Courtaulds had a market capitalization last week of around £1.3 billion, while analysts reckon that the coatings business alone has a separate stock market value of £1 billion to £1.5 billion.

The business, which is the global leader in marine paints, may be snapped up by one of the leading coatings manufacturers, either before or soon after its planned listing on the stock market this summer. Possible purchasers include Akzo Nobel and ICI.

A day before Courtaulds revealed plans for splitting up the company. Akzo Nobel's chairman Cees van Lede indicated at Akzo's annual results press conference in the Netherlands that it is planning a major acquisition in coatings.

He added that it could easily afford Fl 2 billion to Fl 3 billion ($1 billion to $1.5 billion) for a takeover.

As a part of its reorganization, Courtaulds is eliminating 500 jobs in fibers and chemicals in the UK, mainly in fibers research and technology.

It is merging its research activities in viscose and cellulose fibers into a single unit, in line with its strategy of withdrawing from the viscose apparel sector to concentrate on industrial and non-woven specialties.

The company is also acquiring Hoechst's 27.5 percent stake in their German-based European Fibers joint venture in viscose and acrylic fibers. At the same time, Hoechst is taking over Courtaulds' minority share in their oriented polypropylene film joint venture.

The restructuring by Courtaulds has reinforced speculation of a merger between its fibers operations and that of Lenzing. The two are Europe's leading viscose producers, while they both produce the new cellulosic fiber lyocell.

Mr. Campbell reiterated last week that a merger is "a good idea" but stressed that it might not necessarily happen. Lenzing, which previously denied it was interested in a merger, was being careful last week not to rule one out.

"It is a possibility, although we are not actively talking about it," says a Lenzing official. "There are problems of overcapacity and low prices in the viscose market. But we have to consider the reaction of the competition authorities to this sort of solution."

Lenzing opened its first lyocell plant last July in Austria with a capacity of 10,000 tons a year. It has already expanded to 12,000 tons and is planning to increase to 15,000 tons shortly.

Courtaulds is due to open a delayed 42,000-ton-a-year lyocell plant at Grimsby, England, this spring. After expansions at two lyocell plants in the US, its total annual capacity in the fiber will be close to 100,000 tons next year.

However, business in the fiber, marketed under the brand name Tencel, will make a loss this year, mainly because of a fall in demand in Asia and the high costs of establishing the Tencel brand, according to Courtaulds.

The company has been focusing a lot of its Tencel marketing effort on Japan, where the textile industry and consumers tend to be more responsive to innovative fibers.

It has also been targeting the denim sector, which has been suffering from a decline in sales due to changes in fashion.

Both Courtaulds and Lenzing are now concentrating on boosting lyocell sales in Europe, where they need to spend more on marketing than they would in Asia. They are also facing tough competition in Western Europe from polyester products, which textile companies are adept at modifying to compete against more expensive materials.

"In the apparel sector, polyester is so flexible that with microfibers, texturing and blending with natural fibers, it can be given a similar aesthetic appeal as lyocell," says Stan Dobson, fibers specialist at Tecnon UK, the London-based consultancy

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