PACKAGING company Macfarlane faces a big loss of merchanting business, after about 50 employees of its recently-acquired National Packaging business defected to a rival set up by their former management team.

Meanwhile Glasgow-based Macfarlane, which has been hit by a downturn in business from its key electronics customers, yesterday announced it was cutting 70 jobs at Govan and 20 at Braehead in Glasgow. This will reduce the respective workforces at these sites to 80 and 57.

Macfarlane paid (pounds) 21.7m to buy National Packaging from industrial group Charles Baynes in April last year, trumping a (pounds) 16m management buy-out bid approved previously by Baynes' board.

The Scottish firm has merged this acquisition with its merchanting business, which was formerly known as Abbott. Both sell packaging products from various sources in bulk to trade buyers.

Macfarlane's loss of so many National Packaging staff and some customers to the newly-formed Kite Packaging raises a doubt over the price it paid for the business.

Kite has not yet tried to poach National Packaging clients because of restrictions in the employment contracts of those who defected. These are now expiring.

Iain Duffin, Macfarlane's chief executive, refused the opportunity to comment on the National Packaging situation yesterday.

A Macfarlane spokesman said management was ''still convinced that they got a good deal'' and wished Kite ''good luck''.

Bruce McInnes, who led the management buy-out attempt last year and now runs Kite from National Packaging's home city of Coventry, said yesterday: ''You can imagine, gazumping a management buy-out, the management in general aren't totally enthralled by that. There is a study somewhere that people who have gazumped management buy-outs have lived to regret it.''

Highlighting the expiry of restrictions on former National Packaging staff trying to bring their former clients to Kite, McInnes added: ''They (Macfarlane) believe they have lost a

lot of business to us. The reality is they haven't to date The restraint conditions for the bulk of the people have expired or expire this month and certainly, to the degree we have kept away from known National Packaging accounts to date, I leave it to you (to decide) whether we are likely to continue so to do.''

McInnes said some customers had come to Kite from National Packaging of their own accord - claiming they had been ''unhappy with deterioration in service''. But he said these clients accounted for a small proportion of Kite's business, and that the company had not been set up to ''steal their (National Packaging's) business''.

He said all but two or three of the former National Packaging employees now with Kite had been among about 135 office and sales staff employed by the Baynes subsidiary when it was bought by Macfarlane, as opposed to drivers and warehouse staff making up the rest of the 275-strong payroll.

Kite employs slightly more than 60 - so most of its employees are from National Packaging.

McInnes left National Packaging before Macfarlane took it over on April 9.

Explaining Kite's formation, he said: ''After about four weeks, I started receiving various approaches from my former colleagues at National Packaging who were extremely unhappy.''

McInnes had told them he

was ''not interested in backing a little owner-operated packaging business'' but that he would be very interested in putting up money to help them build a ''major national business''.

Kite launched in the third quarter of last year and now has nine depots in England and Wales.

McInnes, who was chairman of Charles Baynes but also ran National Packaging for about two years ahead of its sale to Macfarlane, acknowledged Macfarlane was likely to remain by far the dominant player in merchanting for the ''foreseeable future''.