Akzo seeks US$30b merger

Group says it’s in ‘con­struc­tive talks’ with smaller US ri­val Ax­alta

The Star Malaysia - StarBiz - - Foreign News -

AM­S­TER­DAM: 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 Ltd to cre­ate a US$30bil 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

26bil (US$30.2bil) takeover of­fer from US ri­val PPG In­dus­tries.

Reuters re­ported last Fri­day that Akzo had ap­proached Ax­alta about a pos­si­ble merger, send­ing Ax­alta’s shares 17% higher.

Akzo un­der­lined in a brief state­ment that the talks would not af­fect its de­ci­sion to sell its

8bil-€ Chem­i­cals Di­vi­sions, val­ued at 10bil. It re­it­er­ated prom­ises to re­turn the “vast ma­jor­ity” of pro­ceeds to share­hold­ers.

Akzo has a mar­ket cap­i­tal­i­sa­tion of 19.5bil (US$22.7bil), while Ax­alta is worth US$8.1bil at Fri­day’s clos­ing price of US$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% 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 No. 3 and 4 play­ers. The new com­pany would trail the Sher­win-Wil­liams/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 from com­bin­ing op­er­a­tions.

An­a­lyst Joost van Beek of Theodoor Gilis­sen said the tim­ing of the Ax­alta deal would 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.”

Akzo did not dis­close how it is con­sid­er­ing struc­tur­ing the deal, though prom­ises to re­turn pro­ceeds from the chem­i­cals di­vi­sion 250mil sale to share­holder and de­scrib­ing the deal as a merger sug­gests Akzo may pay mostly with shares. A spokesman de­clined com­ment be­yond the state­ment con­firm­ing talks.

Sources fa­mil­iar with the mat­ter told Reuters last Fri­day that talks were at an early stage and there was no guar­an­tee the com­pa­nies would come to an agree­ment.

Akzo said it would sell the Spe­cialty Chem­i­cals di­vi­sion, which rep­re­sents a third of its sales and prof­its, as it at­tempted to avoid a takeover by PPG.

Akzo has also com­mit­ted to re­turn at least 1bil ex­tra to in­vestors this year via a spe­cial div­i­dend, in ad­vance of the di­vi­sion sale. — Reuters

Gi­ant in the mak­ing: An em­ployee han­dling empty Du­lux paint pots at Akzo No­bel’s fac­tory in Ash­ing­ton, UK. Akzo says merg­ing with Ax­alta, whose truck coat­ings busi­ness fills a hole in its port­fo­lio, will cre­ate a lead­ing global paints and coat­ings com­pany. — Bloomberg

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