Akzo Nobel secures world paint lead with ICI deal
Mon Aug 13, 2007 1:34PM EDT
LONDON/AMSTERDAM, Aug 13 (Reuters) - Dutch chemicals group Akzo Nobel agreed to buy Britain's ICI for 8 billion pounds ($16.2 billion) on Monday to create the world's biggest paint maker and retain its lead in industrial coatings.
Akzo had to raise its bid twice to secure a deal but still has to win shareholder support and faces opposition from at least one major investor, U.S. fund TPG-Axon.
"This is an overpriced deal, at the top of the cycle, and we are not supportive," TPG-Axon, which owns about 3.5 percent of Akzo, said in a statement, adding the price was "almost twice the valuation of Akzo, for an inferior company with weak cashflow and significant exposure to the US housing market".
Akzo, whose coatings are used on Airbus's A380 superjumbo, said it would pay 670 pence a share in cash for Imperial Chemical Industries Plc (ICI), which makes Dulux paints. That is 22 percent above ICI's closing share price on June 15, the day before it announced a bid approach from Akzo.
Shares in ICI, Britain's biggest chemicals company, closed 2.8 percent higher at 642 pence, around 4 percent below the offer price and reflecting some doubts whether Akzo shareholders will back the deal. Akzo shares, helped by an upturn in European stock markets, rose 2.4 percent to 58.05 euros.
Akzo sought to sweeten the ICI deal for shareholders by saying it could return up to 3 billion euros ($4.1 billion) to them from next year, on top of an existing cash return of 1.6 billion euros.
In a side deal, German consumer products group Henkel will buy ICI's adhesives and electronic materials units for 2.7 billion pounds, conditional on Akzo buying ICI.
Buying ICI will give Akzo a market-leading position in paint and also allow it to retain its lead in industrial coatings, which was under threat from U.S. PPG Industries which plans to buy Dutch rival SigamKalon for about $3 billion.
A combined Akzo-ICI will have about 15 percent of the world's $85 billion-a-year coatings industry, versus about 10-percent for PPG-SigmaKalon, and will boost Akzo's position in North America and fast-growing emerging markets.
Akzo is side-stepping the current turbulence in debt markets by paying for the deal with proceeds from the 11 billion euro sale of its Organon drugs unit to Schering-Plough Corp.
Akzo Chief Executive Hans Wijers said he had not been able to talk to shareholders about the details of the deal prior to a formal announcement, but was confident they would support it.
"I am convinced that now we are able to be open about the facts to our shareholders that we will be able to convince our shareholders," he told a news conference.
Some analysts were not convinced, however.
"Akzo Nobel can create significantly more value at lower risk if it would not acquire ICI," Rabobank analysts wrote in a research note, advising Akzo investors to vote against the deal.
ICI was founded in 1926 from four companies including Nobel Industries, the business created by Alfred Nobel, the inventor of dynamite, that later became part of Akzo Nobel.
Once the bellwether of the UK stock market, ICI pioneered the development of synthetic materials, including a laboratory accident in 1933 that led to the creation of polythene. But its chemicals business was hit by cheap competition from Asia and it has been tipped for takeover since spinning off its drugs business and slimming down to focus on paints and adhesives.
It joins a long line of famous British companies, from glassmaker Pilkington and airports owner BAA to soccer club Manchester United, to agree to a foreign takeover.
"It's a day of mixed feelings," ICI Chief Executive John McAdam told a news conference. "But from the point of view of our shareholders, we feel it is a good deal for them."
McAdam declined to say whether he would stay with the combined group or whether ICI had received other bid approaches. A source close to the matter told Reuters earlier this month that U.S. group Dow Chemical might bid for ICI.
Akzo said it expected to achieve annual pretax operating cost savings from ICI's paint business of 280 million euros, at a one-time restructuring charge of 315 million euros.
Wijers said he expected to cut jobs, but said it would not be clear how many until after completion in November or December, and that Akzo would also review the parts of ICI's National Starch business not being sold to Henkel.
"It is not clear whether the concerned Akzo shareholders will want to engage in a fight with management on this deal," Petercam analysts wrote in a research note. "If they (do)... Akzo is a clear takeover target."
Analysts said Akzo's bid gave ICI an enterprise value of 10.9 times 2007 forecasts for its earnings before interest, tax depreciation and amortisation. This compares to the 9.5-10 times being considered by PPG Industries for SigmaKalon.
Akzo is being advised by Morgan Stanley, while Merrill Lynch and UBS are acting for ICI.
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