Magazine article Management Today

That Demerger (1): What It Says about the British Economy

Magazine article Management Today

That Demerger (1): What It Says about the British Economy

Article excerpt

When it seemed likely that Lord Hanson would bid for ICI and apply his own version of the demerger treatment to the cornerstone of Britain's manufacturing industry, there were cries of foul from politicians, union leaders and other critics. Now that ICI's managers are enthusiastically promoting their own radical demerger plan, the critics have on the whole remained silent.

Presumably Lord Hanson now feels a prophet without honour in his own land. But we should all be grateful to him. What ICI might not have summoned up the courage to do on its own, it has done with his prodding. As the Financial Times's Lex column put it: |ICI's demerger plan is a splendid example of how a supposedly hidebound management can be rendered nimble by a sense of threat.'

ICI is long overdue for radical treatment. The recent story has been one of steady job losses and a company seeking a strategy. The more traditional part of the company, the ICI of paints, explosives and heavy chemicals, employed just over 88,000 people to make profits of 313 million [pounds] on sales of 8,701 million [pounds] in 1991. ICI Bio (City wags will no doubt dub it Baby Bio after the plant fertiliser) had 35,500 people making more than twice as much profit on sales more than half those of the traditional ICI. No wonder there is enthusiasm for the split. Bio should achieve the stock market rating its performance and pharmaceutical and agrichemical products deserve, enabling it to raise finance more cheaply.

While Bio forges ahead, it is hard to work up the same enthusiasm for the heavy rump. Nevertheless ICI's future managing director, Ronnie Hampel, robustly defends what can be achieve through restructuring a business that was a powerful cash cow as recently as 1989. Despite the feeling that ICI will find the going tougher than the liberated Bio, the case for the demerger remains powerful. It should help cut through some of the bureaucracy that envelopes ICI. However, the demerger does not alter the basic problems that each business faces, says chairman Sir Denys Henderson, but |they can be addressed in sharper focus'. Why then is Dr Razeen Sally, a research associate at Insead, the European business school, so critical? …

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