Akzo Nobel to Sell Specialty Chemicals Unit to Carlyle for EUR10.1 Billion -- Update

By Ben Dummett

A consortium led by U.S. private equity giant Carlyle Group LP agreed Tuesday to buy the specialty chemicals business of Dutch paints giant Akzo Nobel N.V. for EUR10.1 billion ($12.6 billion) including debt, as the competition for bigger, riskier deals between cash-rich buyout firms heats up.

Akzo's chemicals are used in a wide range of products from plastic bags to solar panels. The sale is a key part of the Amsterdam-based manufacturer's plan to boost its share price to appease Elliott Management Corp., the U.S. activist hedge fund, and other shareholders after successfully fending off a $27.6 billion takeover bid last year from U.S. rival PPG Industries Inc.

The deal "is a key milestone...to generate value for all stakeholders," Thierry Vanlancker, Akzo's chief executive, said in a statement.

Carlyle and its partner GIC Pte. Ltd., Singapore's sovereign-wealth fund, gain a business benefiting from increased demand, particularly in Europe, amid improving economic conditions and rising prices. For 2017, Akzo's chemicals business grew revenue by 4% to almost EUR$5 billion from the year-before period, while operating income gained 10% to EUR689 million.

That earnings momentum underscores a competitive auction process for the specialty chemicals business. Carlyle beat out private-equity firms Apollo Global Management and an alliance of Bain Capital Private Equity and Advent International Corp.

Global private-equity firms are under increasing pressure to do larger deals after the industry raised $453 billion in 2017, the largest amount in any year, for a total over $1 trillion to invest, according to data provider Preqin.

In December, KKR & Co. won an auction against Apollo and CVC Capital Partners to acquire the margarine-and-spreads business of Unilever PLC in a EUR6.8 billion deal.

In January, a Blackstone Group LP -led consortium struck a deal to buy a controlling stake in the financial-information business of Thomson Reuters Corp. for $17 billion.

However, bigger deals also come with greater risk if they don't work out as demonstrated by the bankruptcies of Toys "R" Us Inc. and iHeart Media Inc.

"Were the industry to perform due diligence on itself, these trends would raise a red flag," management consulting firm Bain & Co. said in a recent private-equity report referencing the pressure to complete bigger transactions.

Still, Carlyle has had success investing in the chemicals sector. In 2016, the firm struck a $3.2 billion deal to acquire Atotech Solutions, a supplier of plating chemicals used in circuit boards and semiconductor manufacturing from French energy giant Total SA.

It also made a successful bet on its acquisition of Axalta Coating Systems Ltd.It bought the U.S. company from DuPont Co. for $4.9 billion and the assumption of $250 million in pension costs in 2013. It then installed a new chief executive and chief financial officer, who oversaw new investments in emerging markets and a cost-cutting effort. Carlyle took Axalta public in 2014, generating a return of more than double the cash it invested in the business by the next year through a partial sale of its shares.

Akzo, which traces its roots in part back to dynamite inventor Alfred Nobel, said it would generate proceeds of about EUR7.5 billion from the sale and expects to distribute the bulk of that to shareholders as part of the company's previous stated plan. The deal is also meant to make it easier for investors to value the company by simplifying its corporate structure with a focus only on paints and coatings.

The paints and coatings business faces a challenging environment amid higher raw materials costs and foreign currency volatility. In 2017, Akzo's paints and coatings division posted at 2% on-the-year gain in revenue but operating income fell about 11% to EUR825 million. Akzo manufactures paint brands such as Dulux and its coatings include Interpon among others. Coatings are used to prevent corrosion and improve durability across sectors including automotive, electronics, mining and marine.

Write to Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

March 27, 2018 03:47 ET (07:47 GMT)

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