Akzo Nobel, Axalta Coating Abandon Merger Talks -- 2nd Update
November 21 2017 - 5:57PM
Dow Jones News
By Ben Dummett
Akzo Nobel NV and U.S. rival Axalta Coating Systems said Tuesday
they abandoned talks to merge after failing to agree on terms for
the proposed tie-up.
The companies' didn't detail reasons for the collapse. The Wall
Street Journal first reported that the talks had ended.
The deal would have created a multibillion-dollar paints and
coatings giant. Industries ranging from automotive to mining use
coatings to prevent corrosion and improve durability.
The combination of the two companies could have boosted profit
growth by lowering raw material costs, eliminating overlapping
operations, expanding the combined entity's products and adding new
customers.
Now Akzo and Axalta face that challenge as separate companies at
a time of rising raw material costs and sluggish demand. In the
third quarter, Amsterdam-based Akzo reported a 13% drop in adjusted
operating profit, hurt in part by higher raw material costs.
Meanwhile, Axalta posted a 20% drop in adjusted net income in the
same period, amid lower volumes in North America.
"We remain focused on our strategic options....to improve
profitability in the future," Thierry Vanlancker, AkzoNobel's chief
executive, said in a statement.
Before initiating merger talks with Philadelphia-based Axalta,
Akzo had in April laid out a plan to boost earnings and its stock
price to fend off a $28 billion takeover attempt from U.S. rival
PPG Industries Inc. A key part of that plan called for Akzo to spin
off its specialty-chemicals business from its paints and coating
operations and distribute the majority of proceeds to shareholders.
Akzo had also targeted to boost its return on annual sales to about
15% by 2020 from about 12% currently. Both plans remain in place,
the person familiar with the matter said.
Axalta's stock surged almost 17% to $33.15 in New York trading
when the merger discussions first leaked in late October. The
company's stock closed at $33.87 Tuesday, giving it a market value
of about $8.23 billion. That surge suggests a negative market
response to the failed talks could put pressure on Axalta to find
an alternative partner.
Axalta signaled confidence in its outlook despite the breakdown
in talks, noting in a statement that it "continues to pursue other
value-creating alternatives"
Akzo's stock price has stayed relatively flat since knowledge of
the talks emerged. Its market value of about $23.05 billion is
already more than twice that of Axalta.
Still some analysts and investors have speculated that PPG
Industries may mount another bid for the Dutch company since Akzo
would be cheaper after spinning off the specialty-chemicals
business. Some analysts have estimated that business could be
valued at up to $10 billion.
PPG has publicly played down any interest in Akzo since
abandoning its offer this summer.
Akzo and Axalta's tie-up would have been a merger of equals and
Akzo's spinoff of the specialty chemicals business was a condition
of the deal.
Write to Ben Dummett at ben.dummett@wsj.com
(END) Dow Jones Newswires
November 21, 2017 17:42 ET (22:42 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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