Global paints, coatings consolidation ripe: Citigroup

20 March 2007 11:20  [Source: ICIS news]

LONDON (ICIS news)--Consolidation is ripe in the $85m global paints and coatings industry with ICI and Valspar the most likely acquisition targets, Citigroup analysts said on Tuesday.

 

“Strong balance sheets, acquisition-driven growth, strategies and the current fragmented status of the paint market mean major deals are very likely,” the analysts said in a note to clients.

 

“ICI and Valspar appear to be the most likely of the large global players to be acquired given strategic, anti-trust and financial criteria,” they said.

 

The analysts added that small decorative paint and Asian industrial coatings producers were also likely targets. SigmaKalon with a 17% European market share was also mentioned as a possible option.

 

“This process has something of a ‘Pacman’ feel to it – potential acquirers could easily be bought themselves,” they said.

 

“What seems certain, however, is that the current structure is set to change dramatically and some share prices are likely [to] do the same.”

 

According to Citigroup, 10 players account for the top 50% of the global market, offering substantial consolidation potential.

 

The analysts said Dutch Akzo Nobel was the global leader at 10% and the company with the most firepower.

 

“Recognition of its imminent financial strength post its healthcare disposal is widespread,” they said.

 

“We believe its long-speculated takeover of ICI is feasible; the rationale is compelling, but other combinations also look possible.”

 

Citigroup said it had upgraded UK’s ICI to a Buy/Medium risk recommendation, reflecting the very high probability of it playing a central role in the consolidation process.

 

It also raised the company’s target share price to 550 pence ($10.8/€8) from 420p. ICI’s shares rose 1.32% in early trading on Tuesday to 489.13p.

 

Akzo Nobel is placed on a Buy/Medium risk rating and Citibank said its analysis showed that the share price was trading at in excess of €2bn ($2.7bn) of equity value below its view of fair value.

 

The company’s shares were at €55.72 at 10:35 GMT on Tuesday, down 0.23% from the previous close.

 

“In our view, the market is being overly concerned about the value destruction from a takeover,” the analysts said.

 

($1 = £0.51/€1 = £0.68)

($1 = €0.75)

By: Hilde Ovrebekk
+44 20 8652 3214

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