IWP International, the household products, labels and distribution company, has sold its carton division to two management buy out groups for £10.6 million.
John Cleland (Holdings) which has plants in Belfast and London, has been sold to its existing management and Nat West Ventures, while DM Beheer, the Dutch Miedema company, has been sold to that company's existing management and Nederlandse Participatie Maatschappij.
The consideration has been satisfied by the payment of £8.17 million in cash on completion. The balance of £2.43 million will be satisfied by the issue of £1.95 million in 6 per cent cumulative five year redeemable preference shares in John Cleland Group the management company set up to effect the buy out of Cleland and £0.48 million in a 6 per cent convertible loan note in DM Holding the Dutch management company redeemable over seven years.
IWP's chief executive, Mr Joe Moran, said the group had decided to sell the carton businesses because it wanted to concentrate on personal care and household products. IWP would have required a further acquisition, with a turnover of at least £20 million, to bring the carton division's turnover above the existing £10 million to £15 million.
"We had to make a decision" and IWP felt it could use the proceeds from the disposals to better effect in personal care and household products, he said.
However, he conceded that the carton division was "quite a nice business". Also it is on a recovery path. It generated a pre-tax profit of £1.1 million in the 11 months to February 29th, 1996, and the annual profit should rise to £1.5 million in 1996/7, he said.
The carton businesses were purchased for around £8 million three years ago. However, there was a capital investment programme of around £2.5 million per annum since then which would have brought the total cost up to almost £16 million.
But as the purchasers of the businesses are also assuming responsibility for the borrowings of the division, amounting to £8.65 million, IWP does not appear to have lost from the investment in real terms.
"The net assets of the division amount to £8.1 million. IWP will save around £0.6 million in interest following the sales but there will be £1.5 million less in pre-tax profit, so the deal will dilute group earnings.
However, Mr Moran stressed that taking the sale of the carton businesses together with last December's purchase of Burlington Holdings, a British toiletry and gift products, it is earnings neutral in year one and should be earnings enhancing thereafter.
Gearing at its year end (March 31st, 1996) is expected to be around 60 per cent. Also, Mr Moran said, the interest cover will be a comfortable 10 times.
Asked if IWP would now sell its labels business, Mr Moran said the company had no plans to do so. This business, he added, fits in well with the other businesses.
In a separate move, IWP has decided to redeem the I3 million preference shares in Levendaal Beheer, its Dutch subsidiary which manufactures and distributes personal care and household products.
A quarter of the shares were due for redemption this year and a further quarter next year but IWP is now to redeem all the shares this year. They have a net coupon of 7 per cent and redemption is expected to save IWP around £0.65 million in servicing costs this year.
