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Akzo Nobel given August deadline for ICI bid
Fri Jul 6, 2007 5:40PM EDT

LONDON (Reuters) - Dutch chemical company Akzo Nobel has been given one month to decide whether to press ahead with a 7.2 billion pounds bid for ICI, and analysts expect it to make a sweetened offer to fend off any rivals.

The Takeover Panel said on Friday Akzo Nobel must decide by August 9 whether to make a takeover offer for Imperial Chemical Industries after the UK maker of Dulux paints rejected a takeover approach at 7.2 billion pounds, or 600-pence-a-share, in cash in June.

Sources familiar with the matter have told Reuters that Akzo Nobel, the world's largest maker of industrial coatings, is considering a higher bid but is prepared to delay a move, because its 600p offer may flush out rivals.

U.S. groups Dow Chemical and DuPont, Germany's BASF and India's Reliance may bid for ICI, according to analysts.

Analysts expect Akzo, which makes Crown paints, to make a bid of between 650p and 700p, because failure to make a significant acquisition may leave it vulnerable to a bid itself.

"Given the strategic benefit ... we are of the view that the Akzo board will override short-term activist shareholder preferences for no deal but a big cash return in favour of pressing ahead with a firm offer," Evolution Securities analyst Peter Cartwright said.

At 650p, Akzo would pay 11 times estimated EV/EBITDA (enterprise value divided by earnings before interest, tax, depreciation and amortisation), according to KBC Securities.

JPMorgan Cazenove analysts said Akzo may try to win over ICI investors by offering a share alternative in the new company with a London listing.

Acquiring ICI would give Akzo a boost in the $85 billion (42.3 billion pounds) coatings industry, allowing it to increase worldwide market share from around 10 percent to around 15 percent, ahead of second-ranked Sherwin Williams's 9 percent share. 


By 2:25 p.m. British Time, ICI shares were down 0.9 percent to 614-1/5 pence, and Akzo was up 0.9 percent to 64.42 euros.

With its core coatings and chemicals segments currently discounted at around 5.6 times EBITDA, Akzo may be taken over by private equity funds if it fails to win ICI, analysts said.

"It (the delay in a formal offer for ICI) illustrates the tightrope Akzo is walking," Collins Stewart analyst James Knight said.

"Private equity has shown strong interest in the coatings sector and reportedly interest in Akzo itself, given the highly attractive dynamics of coatings businesses -- low capital intensity, strong cash generation, brands and technology."

Reflecting growing merger activity in the sector, U.S. private equity firm Apollo Management unveiled this week a $6 billion offer for U.S. chemical company Huntsman, outbidding an agreed $5.6 billion deal with privately owned Dutch chemicals company Basell.

Source: Reuters

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