PPG Industries' offer comes amid wave of consolidation in
chemicals industry
By Christopher Alessi in Frankfurt and Ian Walker in London
Dutch paints and chemicals maker Akzo Nobel NV said Thursday it
had rejected a EUR20.9 billion ($22.1 billion) offer from U.S. peer
PPG Industries Inc., setting up a trans-Atlantic standoff between
two long-lived industrial giants amid a wave of consolidation in
the sector.
Amsterdam-based Akzo also said Thursday that it is exploring
selling off its special-chemicals division -- a disclosure, it
said, prompted by PPG's unsolicited offer.
Akzo said PPG a week ago offered EUR54 in cash and 0.3 PPG
shares for each Akzo share, corresponding to a value of EUR83 a
share. Akzo shares increased 13% to EUR72.79 in Thursday trading,
while PPG dropped 3.7% to $102.93.
There have been dealings between the two companies before. In
2012, PPG bought Akzo's North American house-paint business for
$1.05 billion, an acquisition that PPG Chief Executive Michael
McGarry helped engineer before being promoted to the top spot at
the Pittsburgh-based company in 2015.
Akzo, which counts Dulux, Sikkens, Interpon and Eka among its
brands, said the bid significantly undervalues the company and that
its board unanimously rejected it after a careful review.
PPG, whose brands include Pittsburgh Paints, Olympic and
Glidden, confirmed the proposal, saying it continues to believe in
the strategic rationale for the deal and that it would now consider
its next steps. It said a combination would bring together
complementary products and technologies, as well as strengths in
different parts of the world.
In December, PPG launched a restructuring program in an effort
to save $120 million to $130 million a year because of a slowdown
in global demand and weaker-than-expected growth in Europe.
Seaport Global Securities LLC analyst Michael Harrison noted
PPG's struggle to grow, its accumulation of cash and the fact that
coatings rival Sherwin-Williams Co. is about to close its deal for
Valspar Corp. Combined, those companies would outstrip PPG and Akzo
in sales.
PPG's bid for Akzo is "a strategic response to that," Mr.
Harrison said,
For 2016, PPG recorded net sales of $14.8 billion, flat with the
preceding year. Akzo's revenue fell 4% to EUR14.2 billion.
The offer comes amid a period of consolidation in the chemicals
industry. U.S. giants Dow Chemical Co. and DuPont Co. are in the
process of completing a $120 billion merger, and have offered to
sell businesses to gain approval from the European Union's
antitrust regulator.
Industrial-gas giant Praxair Inc. and Germany's Linde AG created
a combined entity worth $66.6 billion after agreeing to a merger in
December.
Other potential tie-ups in the broader chemicals sector include
Bayer AG's planned $57 billion takeover of U.S. agrochemical giant
Monsanto Co. and China National Chemical Corp.'s planned $43
billion acquisition of Swiss seed company Syngenta AG.
Akzo Chief Executive Ton Büchner said on Thursday that Akzo has
been looking at separating its specialty-chemicals business,
including establishing the unit as an independent listed entity.
The business, which reported revenue of EUR4.8 billion in 2016,
produces a range of chemicals used in construction, industrial and
consumer goods.
"The proposal [by PPG] contains serious risks and
uncertainties," Mr. Büchner said in a statement. "I firmly believe
that Akzo Nobel is best placed to unlock the value within our
company ourselves."
The spurned offer puts at odds two of the world's oldest
industrial companies. Akzo Nobel was created from the merger of
paint and chemicals companies in Sweden and the Netherlands that
dated back more than a century. Among them was a chemicals firm
founded by Alfred Nobel, who launched the prizes that bear his
name. After the merger in 1994, Akzo acquired two of Britain's
oldest paint and chemicals firms.
PPG, founded in 1883 as Pittsburgh Plate Glass Co., was the
first U.S. company to successfully market large sheets of glass,
until then an expensive rarity. It quickly expanded into chemicals
to secure a supply of raw materials and was an early supplier of
the automotive and aviation industries.
Mr. Büchner, who took over the top job at Akzo in 2011, has
presided over a comprehensive restructuring that has led the
company back to profitability. But he has in the past resisted
separating the specialty-chemicals unit because it has been the
group's "cash cow," said Markus Mayer, an analyst with Germany's
Baader Bank.
"The market would love that Akzo would spin off specialty
chemicals," Mr. Mayer said.
Analysts widely expect PPG to raise its offer. Mr. Harrison said
Valspar commanded a much higher multiple to earnings than the bid
for Akzo. But many obstacles remain to securing a deal.
The bid comes amid concerns by labor groups and others about
foreign takeovers of Dutch firms, just ahead of national elections
next week. Kraft Heinz Co.'s bid for Anglo-Dutch consumer giant
Unilever PLC failed last month in part on similar worries, though
price was the main hurdle.
A hostile takeover would be "all but impossible," according to
research firm Olivertree, because Akzo maintains so-called priority
shares whose holders can block any major transactions they
oppose.
Still, a tie-up would be "credible and potentially powerful,"
analysts at Bernstein Bank said.
Analysts at Citigroup agreed but noted that the overlap of some
business areas could raise antitrust concerns in Europe.
After a record year of mergers and acquisitions activity in the
chemicals industry, consolidation is likely to continue in the
sector, Baader's Mr. Mayer said. He cited a low-growth environment,
cheap financing and overcapacity in many markets.
Akzo became one of the world's largest paint makers after it
acquired U.K. rival Imperial Chemical Industries Ltd. in 2008 for
GBP8 billion ($12.9 billion). But the Dutch company struggled to
digest the debt-financed acquisition, which raised its exposure to
Europe's troubled automotive and construction industries,
culminating in a series of profit warnings in 2011. It has since
slashed costs and laid off staff.
Corrections & Amplifications An earlier version of this
article misspelled Akzo as Azko. (March 9, 2017)
--Anne Steele contributed to this article.
Write to Christopher Alessi at christopher.alessi@wsj.com and
Ian Walker at ian.walker@wsj.com
(END) Dow Jones Newswires
March 10, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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