Case study

Ciba's Acquisition of Allied Colloids
Part 2

Prof. Ian Giddy, New York University

This describes the events following the acquisition of Allied Colloids by Ciba Chemicals in 1998


21st June - Full cost revealed


AFX Europe ; 21-Jun-1998 

Ciba Specialty Chemicals Holding Inc announced a 3.615 bln sfr total purchase price for Allied Colloids PLC.
It said the data were broken down as follows based on Allied Colloids' balance sheet on March 31, 1998: 


  Fair value of net assets acquired - 388 mln sfr
  Goodwill - 2.198 bln sfr
  Purchased in-process R&D costs - 1.029 bln sfr
  Total - 3.615 bln sfr
Ciba said that 1 bln sfr relating to purchased in-process R&D will be charged in 1998, as the acquired technology has not yet reached technological feasibility. 

Apart from this immediate write-off, Ciba expects an additional charge in its 1998 income statement of up to 50 mln sfr relating to one-off charges for the integration of Allied Colloids. 

It added that the 2.2 bln sfr relating to goodwill will be amortised over a period of 33 years, resulting in a charge of around 67 mln sfr a year. It said the balance sheet reflects adjustments in the values of assets and liabilities to portray fair values under US-GAAP accounting conventions. 

The company aims to complete integration of Allied Colloids as its Water Treatments division by Dec 31. 

Source: World Reporter (Trade Mark). 

World Reporter All Material Subject to Copyright 

16th August - Ciba's acquisition could result in net loss for first-half

MARKETS WEEK August 17 - August 23: Ciba Specialty Chemicals
Financial Times ; 16-Aug-1998 

* Ciba Specialty Chemicals, the Switzerland-based chemicals company, is expected to report first-half net profits before extraordinary charges of SFr305m-SFr350m, against SFr319m a year earlier, analysts said. Last year's figures could be restated as the company has changed its accounting standards to US Gaap from International Accounting Standards (IAS). Extraordinary charges related to the Allied Colloids acquisition of around SFr1.08bn could result in a first-half net loss of about SFr730m. AFX-News, Zurich 

Copyright © The Financial Times Limited 

18th August - Ciba restructuring - Jobs to be lost


Swiss chemicals group Ciba SC has registered a 9 per cent rise in its turnover (at SFr 4.29 billion) for the first half of its 1998 financial year compared to the same period last year. Operating profits rose 3 per cent, to SFr 490 million, whilst net results ended with a loss of SFr 792 million, due to the acquisition of Allied Colloids last March. 

Ciba has also announced a "skills concentration" programme, which will involve the loss of 1,000 jobs. The Swiss group expects these measures to allow it to increase its operating revenue by in the order of SFr 100 million in 1999. 

World Reporter All Material Subject to Copyright 


22nd January 1999 - A year later ....former CEO is out

PEOPLE: Farrar resigns from Ciba
Financial Times ; 22-Jan-1999 

David Farrar, 45, former chief executive of Allied Colloids, is stepping down from the executive board of Ciba Specialty Chemicals one year after the Swiss company won the hotly contested Pounds 1.4bn takeover bid for the Bradford-based chemicals company. 

Bradford-born Farrar, a chemist who had spent his whole career at Allied Colloids, had been made president of a new Ciba Water Treatments division which was headquartered in Bradford. 

However, Ciba announced yesterday that it was merging its new water treatments division with its additives division and moving the headquarters of the water treatments operation to Basle. 

Ciba said Farrar had decided to resign for personal reasons and his departure should not be seen as evidence that Ciba was disappointed with its new water treatments business. Ciba has been criticised for over-paying for Allied Colloids and the company's shares have come under pressure following the collapse of its bid to merge with Clariant late last year. 

Walter Meyer, a Swiss manager who had been responsible for integrating Allied Colloids into Ciba, will head the new water treatments business. Mike Kerr, an Englishman and head of Ciba's UK additives business, becomes managing director of Ciba Water Treatments UK. Bradford will continue to be the global centre for acrylic chemistry innovation and production. 

Ciba said it had decided to merge water treatment with its additives business "to better utilise global resources in order to further build the business". David Farrar will leave the group in April 1999. William Hall 

Copyright © The Financial Times Limited

24th February 1999

COMPANIES & FINANCE: EUROPE: Ciba arm income decreases
Financial Times ; 24-Feb-1999 

Ciba Specialty Chemicals yesterday reported a 35 per cent drop in net income before restructuring charges, to SFr369m (Dollars 254m). It also said it plans to slash capital spending and focus growth on five of its 10 businesses that offer "above-average" profit potential. 

Ciba, weighed down by the costs of last year's SFr3.6bn acquisition of Allied Colloids, a UK water treatment firm, reported a 1998 net loss of SFr739m after writing off SFr1bn of in-process research and development related to Allied Colloids. Operating income rose 3 per cent to SFr877m, but a SFr246m rise in financing charges, primarily associated with the acquisition, took a heavy toll on the group's bottom line. 

Rolf Meyer, chairman and chief executive, said the group had "maintained its operating performance in an increasingly difficult environment". Margins increased in additives, the biggest of Ciba's four divisions, and also in consumer care and colours. However, performance polymer margins were nearly halved. 

Mr Meyer, who has been criticised for paying too much for Allied Colloids and for Ciba's abortive merger with Clariant, its main rival, yesterday stressed that his group was in good shape to weather the industry downturn. He did not share the view that the market would bottom out in mid-1999 and warned that if current trends continued Ciba's margins of 16.1 per cent could drop by one percentage point. 

As a result Ciba is raising its 1999 cost-saving target from SFr100m to SFr150m and cutting last year's SFr459m capital spending by SFr100m. 

Mr Mayer said Ciba's strategy had not changed since the collapse of the Clariant merger in December. However, the group was focusing more closely on its five growth businesses. 

Copyright © The Financial Times Limited

4th March 1999 - Ciba faces downgrading

AFX Europe ; 04-Mar-1999 05:00:42 am

Moody's Investors Service said it placed the A2 and Prime-1 ratings for the debt securities of Ciba Specialty Chemicals Holding Inc and its subsidiaries on review for possible downgrade. 

The ratings agency said the action reflects concerns that operating performance for the group may weaken beyond Moody's expectations for cyclicality at a time when financial flexibility is limited after the acquisition of Allied Colloids Group PLC. 

Moody's said its review will consider the recent downturn in operating performance of the group on the back of weakening market conditions, in particular for the textile, paper and plastics industries. 

It also said it will consider the extent to which the downturn is due to normal cyclical conditions or other, more company-specific factors, as well as the extent to which the downturn can be contained by management's response to the deteriorating operating environment. 

Moody's said it will discuss with Ciba SC's management initiatives it will undertake to conserve cash, reduce debt levels, and extract cost savings from recent restructuring efforts. 

Moody's noted that Ciba SC's 1998 results "showed a noticeable weakening in operating performance in the second half", and that "the trading outlook for 1999 remains soft." | | | | contact
Copyright ©2005 Ian Giddy. All rights reserved.