Zeneca sells loss-making dye business for pounds 150m

Zeneca, the drugs group, is to sell its textile colours business to the German group BASF for up to pounds 150m. The intention to dispose of the loss- making operation had been flagged at the time of Zeneca's preliminary results in March, but the price obtained pleased the market, sending the shares 6p higher to pounds 13.73 yesterday.

Stewart Adkins of brokers Lehman Brothers described the news as very positive. "The company was making no money or even a slight loss from the business, for which they are getting pounds 138m and the working capital back. That should be good for earnings and, more importantly, leaves them able to concentrate on what they do best."

With the $62m sale of the speciality inks business announced earlier this year, Zeneca has cleared out most of the poorly performing parts of its specialities division, he added.

John Mayo, Zeneca's finance director, said in March that margins in specialities should rise from last year's 5.4 per cent to above 8 per cent following the disposals.

Explaining the latest sale yesterday, a Zeneca representative said the market for textile colours has been extremely competitive and very turbulent over recent years. "We have been looking at ways to improve the performance of the business for some time and came to the conclusion it would be better off as part of a larger group."

Like BASF's existing operation, the Zeneca business is one of the six largest textile dye producers in the world. Together they will become the third largest group, behind Distar, created from the merger of the separate dyestuffs operations of Hoescht and Bayer of Germany, and Ciba of Switzerland.

The Zeneca business dates from the formation of ICI, the drug group's erstwhile parent, in the 1920s. Its sales have been falling recently, dropping from pounds 224m in 1993, to pounds 213m in 1994 and just pounds 202m last year, when it made "a small loss".

But Albrecht Muller, head of BASF's textile and leather dyes and chemicals division, said: "In the context of the strategic re-orientation of our textile dyes business, merging the activities of BASF and Zeneca signifies an important step forward". The company said the merger of the two businesses would considerably expand BASF's business in dyes for cellulosic fibres and greatly improve its position in other dye sectors.

The sale should throw up a substantial capital gain, given that the business had net assets of only pounds 65m last year. The operations being transferred include sites at Ellesmere Port in the UK, Brazil and the US. Around 730 employees will move over to BASF.