Demerger of ICI Pakistan Limited – Diversification Gone Wrong?

icilogo670Demergers of successful conglomerates are normally lead by the imbalance between the role as a Parent (strategic management and planning) and somewhat mindless diversification, ICI Pakistan Limited being an example.

The information on the company’s website hints at it as it cites that the non-paint businesses of ICI Pakistan Limited are not aligned with AzkoNobel’s future strategic ambitions.

In the pretext of such restructurings, it would be interesting, if at some point the Regulator (Securities and Exchange Commission of Pakistan) decides that it would monitor or intervene in the diversification initiatives in case of listed companies.

Internationally ICI faced more or less the same problem that lead to a demerger resulting in ICI and Zeneca and each of the two companies are doing far better than before owing to better strategic planning, so was it internationally flawed strategy?

ICI Pakistan Limited disclosed its plan to restructure in a press release dated 12 May 2012:

“The Board of Directors of ICI Pakistan Limited today decided that ICI Pakistan should be divided into two entities, both of which will be listed on the Karachi, Lahore and Islamabad Stock Exchanges. One such entity will be AkzoNobel Pakistan Limited (comprising the Paints Business) and the other will be ICI Pakistan Limited (retaining all other businesses of ICI Pakistan).

The Board of Directors has also decided that the separation of the Paints Business should be achieved through a demerger, sanctioned by the Court, and that this should be on the basis of the financial statements of the Company as at 30 June 2011. 

The demerger is contingent upon approval by the shareholders, regulators and the High Court of Sind.”

AkzoNobel informed the Board of ICI Pakistan Limited that it has conducted a strategic review of its businesses in Pakistan and concluded that ICI Pakistan’s Paints Business offers clear commercial benefits for AkzoNobel and has sufficient opportunity to create value within its transformed portfolio and future strategic ambitions.

AkzoNobel further informed the Board that while the remainder of the ICI Pakistan portfolio (four major businesses including Polyester, Soda Ash, Life Sciences and Chemicals ) is made up of robust and promising businesses with a strong and professional management team, they are not aligned with AkzoNobel’s transformed portfolio and future strategic ambitions.

At times when the organizations are excessively lead by competition, the corporate units either suffer if lead by the obsolete and crippling strategies or they grow because they are on their own, once they have been given the enabling and capable management.

Outright divestment is not always the only answer, when the diversification has been based on linkages between different businesses that add value, the company has a clear vision that comes with a capable management and when corporate upheaval, short term pressures do not guide the decisions.

Currently Akzo Nobel has stake of 75 percent in the parent company of ICI Pakistan and it would divest its holding in ICI Pakistan to prospective buyers. According to the scheme, the share capital, capital and revenue reserves, inappropriate profits and losses are to be split between the non-paints and paints businesses on the basis of split ratio of 66.5:33.5 respectively, based on net asset share valuation method.

Among the interested Corporate Giants for the controlling interest in ICI Pakistan Limited, are Nishat Mills Limited, Lucky Brothers Group (also known as Lucky Cement) and Fajr Capital.

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6 Responses to Demerger of ICI Pakistan Limited – Diversification Gone Wrong?

  1. Muhammad Imran says:

    The diversification is a highly strategic decision for the management/ shareholder and should be taken with utmost care. A deep professional study and advice is highly necessary before to finalize any such decision. It is always fruitful that you diversify in the relevant field with same or almost same experience where nature of products/services are the same. You would also review your strategies on ongoing basis and make timely decisions for demerger.

  2. Voice of reason says:

    This article… makes no sense… and i’m not even talking about the points you’ve made… but coherence – look it up.

  3. Yasir says:

    there is more to the deal then meets the eye.

  4. I would rather not agree with the caption- “Diversification gone all wrong” for #ICI #Pakistan Ltd. It happens in businesses all over the globe, there are businesses more aligned towards a specialized segments is the #Akzo Nobel ‘s preference for the paint segment. What is more important from #corporate #governance point is that the minority #shareholders get a proper value for their investment in ICI Pak shares.

  5. Well it make sense to me :)

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