United Biscuits to sell losing US division knocks shares

NIGEL COPE

United Biscuits, the beleaguered McVities and KP snacks business, moved to the top of City takeover target lists again yesterday when the company issued a profits warning and put Keebler, its problematic US business, up for sale.

Shares in United Biscuits fell 42p to a three-year low of 279p after the company said profits for the first half of 1995 would be "very substantially below" last year's levels and that the board would sharply reduce the interim dividend.

Profits for the six months to be announced in September will now be about pounds 30m compared with pounds 80m last year. The dividend for the half-year will be 3.5p against 5.5p in 1994, due primarily to problems at the Keebler business in the US. The company said the full-year dividend was also likely to be cut.

The impending sale of Keebler was greeted with relief in the City, which has been critical of the division's performance for some time. Some have regarded Keebler as a poison pill that would deter a potential predator from making a bid for United Biscuits. Its removal might make a takeover more likely.

With a market value of pounds 1.5bn UB would prove an easily digestible bite for Hanson, long mentioned as a possible bidder. Others include Cadbury Schweppes, though the recent Dr Pepper deal might rule it out. Tomkins, which beat Hanson to the Rank Hovis McDougall deal in 1992 is another possibility.

However, some analysts believe the poor trading in other UB businesses such as KP, struggling against competition from Walkers and the growth of supermarket own-brands, might make the business unattractive.

There were also calls for Eric Nicoli, UB's chief executive, to resign after failing to take action sooner on the Keebler sale. The share price is now well below the 320p level when he took over in January 1991.

One analyst said he expected institutional pressure to mount: "It would be extraordinary if he were to survive this. The decision to sell Keebler should have been taken some time ago. Debts are growing and the business is haemorrhaging cash. He should have read the problems."

The company dismissed suggestions that Mr Nicoli might step down. "Current management have taken the decision which others should have taken before them. Current management are the ones who can turn this round."

Bought 20 years ago by the previous UB guard of Sir Hector Laing, Keebler was then a smallish biscuit producer in the Chicago area. In the 1980s the business did well and in 1991 made profits of more than $100m. It is now America's second-largest biscuit manufacturer with a share of 16 per cent.

Recently it has suffered from stronger competitors, falling volumes and rising raw material prices, particularly in packaging. Profits last year fell to just pounds 67m as the snacks business was crippled by market leader PepsiCo which owns the Walkers crisps brand. The biscuit business suffered similar problems at the hands of Nabisco.

In spite of higher marketing spends on brands such as Tato Wilds and O'Boisies, volume growth has not been achieved.

United Biscuits signalled its disenchantment with the Keebler subsidiary last month when it put its loss-making salty snacks business up for sale though, as one analyst put it, "they would be lucky to give it away".

Some analysts suggest the whole of Keebler might fetch only pounds 250m, though others say it could fetch double that. Possible buyers include Campbell Foods and PepsiCo, though the latter might run into competition problems.

Investment Column, page 18