Commentary

Akzo Nobel And Axalta Discuss Blending Their Coatings Systems

Painting the potential outcome as “merger of equals,” Akzo Nobel, which is based in Amsterdam, the Netherlands, and Philadelphia-based Axalta Coating Systems confirmed reports this morning that they are in “constructive discussions.” They are currently the No. 3 and No. 4-ranked manufacturers respectively in the global paints and coatings market, trailing Sherwin-Williams/Valspar and PPG.

“The combined company would have added scale to generate better pricing for raw materials, eliminate overlapping operations and gain new customers to help revive profit growth. Coatings are used to prevent corrosion and improve durability across sectors including the automotive, electronics, mining and marine industries,” Ben Dummett writes for the Wall Street Journal.

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It “would be the first major deal by [Akzo] CEO Thierry Vanlancker, who took over in July after Akzo spurned a $30.2 billion takeover offer from U.S. rival PPG Industries,” point out Toby Sterling and Bart H. Meijer for Reuters.

“Akzo underlined in a brief statement that the talks will not affect its decision to sell its Chemicals Divisions, valued at 8-10 billion euros. It reiterated promises to return the ‘vast majority’ of proceeds to shareholders,” Sterling and Meijer continue. “Akzo said merging with Axalta, whose truck coatings business fills a hole in its portfolio, would ‘create a leading global paints and coatings company.’”

Axalta, in its statement, says it “will pursue such a transaction only if its board of directors determines that it is in the best interest of Axalta to do so. There can be no assurances that a definitive agreement between the parties will be reached or on what terms.” 

In a note this morning, Bernstein analysts say a combination with Axalta would be sensible, combining “the third- and fourth-ranked manufacturers in a market that remains relatively fragmented,” Ellen Proper and Manuel Baigorri write for Bloomberg. But the analysts also point out that there are some antitrust concerns, particularly in the auto refinishings sector.

“Akzo Nobel is looking to pay close to no premium in any deal, a person familiar with the matter” told Bloomberg this weekend. “Axalta, of which Warren Buffett’s Berkshire Hathaway Inc. is the largest shareholder, soared 17% in New York Friday after Reuters first reported the talks, valuing the company at about $8.1 billion. Akzo Nobel has a market value of about $22.6 billion,” Proper and  Baigorri point out.

“Earlier this year, Akzo Nobel was criticized by some of its big shareholders, including activist investor Elliott Management, after it rebuffed an unsolicited $29 billion buyout offer from U.S. rival PPG Industries,” John Murray Brown observes for Financial Times. “Under Dutch takeover rules, PPG is unable to make another bid for Akzo Nobel until December.”

Brown observest that “analysts say Akzo Nobel’s talks with Axalta may be an attempt to block off any possibility of losing its independence.” 

Akzo rebuffed PPG “on the grounds they undervalued the business and ‘[demonstrated] a lack of cultural understanding,’” Jack Torrance reports in The Telegraph.

Akzo Nobel says it origins “can be traced all the way back to a foundry established in the Swedish countryside by Paul Hossman” in 1646. And, in 1852, no less than Alfred Nobel “funded the setting up of a company which went on to become Eka, now part of our Specialty Chemicals business.”

PPF was founded as the Pittsburgh Plate Glass Co. in 1883 by Capt. John B. Ford and John Pitcairn and now has operations around the world.

Axalta, which traces its lineage to the founding of Herberts, the original producer of Standox paint products, in 1866, says it has 52 manufacturing facilities serving more than 100,000 customers in 130-plus countries. It has 13,000 employees worldwide. Its coatings protect customers’ products against heat, light, corrosion, abrasion, moisture and chemical attack, it tells us in a short promotional video. It was acquired by DuPont in the 1990s and renamed DuPont Performance Coating. It was spun off as an independent company with its new name and identity in 2013.

Presumably chairman and CEO Charles W. Shaver and his team are brushing up on Akzo Nobel’s storied corporate culture, among other details relating to whether the deal is in its best interests.

 
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