The Dundee, Govan and North Shields businesses, which manufacture corrugated and timber-related products, incurred pre-tax losses of 1.3m on a turnover of 7.3m for the nine months to September. In 2002, they made a pre-tax loss of 1.5m on a turnover of 12.9m.

A spokesman for Macfarlane said the businesses made up a very small part of the group and had suffered because of the decline of the electronics sector in Scotland.

Macfarlane had a long history of working with DS Smith, he added: There was an attraction for both parties in combining as they operated in similar markets, for companies such as Compaq and Hewlett-Packard.

All 108 staff will transfer to DS Smith under the TUPE European directive. However, the deal is still subject to employee consultation and redundancies have not been ruled out.

The North Shields site employs 19 staff, Dundee has 24 and 65 work at Govan, which will merge with DS Smiths Dumbarton operation.

Macfarlane will record a book loss of 3.2m on the disposal in its end-of-year accounts, primarily due to the write-down of assets.

Macfarlane chairman Sir John Ward, who is to retire on 1 November, said the sale met with the objective outlined earlier this year to reduce losses. This agreement will also help strengthen the strong trading partnership between Macfarlane and DS Smith, he added.