Akzo, Axalta in talks for $30-billion merger
Dutch paints maker Akzo Nobel, under pressure after rejecting a lucrative takeover offer and two profit warnings, has confirmed merger talks with smaller US rival Axalta Coating Systems to create a $30 billion company.
Akzo, the maker of Dulux paint, announced it was in “constructive talks” about a “merger of equals” in what would be the first major deal by Chief Executive Thierry Vanlancker, who took over in July after Akzo spurned a ^26 billion ($30.2 billion) takeover offer from US rival PPG Industries.
Reuters reported on Friday that Akzo had approached Axalta about a possible merger, sending Axalta’s shares 17 per cent higher.
Akzo underlined in a brief statement that the talks will not affect its decision to sell its Chemicals Divisions, valued at ^8-10 billion. It reiterated promises to return the “vast majority” of proceeds to shareholders.
Akzo has a market capitalisation of ^19.5 billion ($22.7 billion), while Axalta is worth $8.1 billion at Friday’s closing price of $33.15.
Akzo said merging with Axalta, whose truck coatings business fills a hole in its portfolio, would “create a leading global paints and coatings company.”
Vanlancker has been forced to cut targets made in the heat of the takeover battle twice in the space of six weeks, blaming disruption caused by hurricane Harvey, rising raw materials costs and “headwinds” at its marine coatings business.
Akzo also faced lawsuits earlier this year from shareholders angry over its decision to reject PPG.
Akzo shares were 0.7 per cent lower at ^76.93 at 0900 GMT, well below a figure of around ^96 proposed by PPG.
Analysts from Bernstein said in a note the deal is a “sensible” idea, combining the number 3 and 4 players. The new company would trail the SherwinWilliams/Valspar combination and PPG globally.
An Akzo-Axalta merger “would improve scale and density in segments and countries where needed while taking out costs, most likely in the fragmented general industrial segment and in Europe,” they said.
They forecast savings of around ^250 million from combining operations.
Analyst Joost van Beek of Theodoor Gilissen said the timing of the Axalta deal will be difficult, and Akzo’s management is under pressure to pull it off.
“There is a large risk that Akzo will pay too much, as it is clear that they want to stay out of the hands of PPG, and Axalta knows that.”