ICI yesterday rejected a new cash offer of 650p a share from Dutch rival AkzoNobel, saying it did not reflect the full value of the UK chemicals group.

The Dutch suitor also confirmed that its raised bid was made possible through a back-to-back deal with Henkel, the German maker of Persil washing powder.

Under the agreement, if Akzo were successful in bidding for ICI, it would immediately sell on ICI's adhesives and electronic material businesses to Henkel.

The agreement would allow Akzo to pay ICI shareholders a sum equivalent to a 40 per cent premium over their company's share price on March 9th when Akzo made its intentions clear, and would also allow the Dutch company to return cash to its investors.

ICI said the proposal was subject to a number of preconditions, including completion of due diligence.

"Discussions are continuing, however, ICI has not granted Akzo access to due diligence information," it added.

Standard Life Investments, one of ICI's leading shareholders, said: "We are comfortable with ICI's decision to turn down the bid from AkzoNoble."

At 650p a share, the revised Akzo offer valued ICI at about £7.77 billion.

One investor said that Akzo's alliance with Henkel could give the Dutch conglomerate enough flexibility to get close to offering 675p a share for ICI.

But James Knight, analyst at Collins Stewart, said: "I am puzzled by the rejection. I think 650p is a reasonable ceiling. I am not sure they can reasonably expect to squeeze a higher offer at this point that will be acceptable to Akzo's shareholders."

Some investors were surprised that ICI did not allow due diligence following the offer. Analysts and investors did note that the language used to reject the 650p offer was much softer than the characterisation of the initial 600p approach as "significantly undervaluing" the company.

In June, the board of ICI rejected the 600p-a-share indicative offer from Akzo, deeming it too low, and said it would press ahead with plans to invest in organic and acquisition-led growth opportunities.

ICI's shareholders have argued that the company is worth about 700p a share, which is higher than most analysts' standalone valuations of ICI of up to 500p a share. - (Financial Times service)