Akzo could consider higher bid for ICI - reports

21 June 2007 00:03  [Source: ICIS news]

HOUSTON (ICIS news)--Dutch coatings company Akzo Nobel is considering a higher bid for ICI, unconfirmed media reports said on Wednesday.

If Akzo pursues the acquisition, it would follow a larger trend of consolidation in the coatings industry, said Phil Phillips, managing director of The Chemark Group, a consulting firm in Southern Pines, North Carolina, that specialises in coatings.

The number of North American coatings companies dropped from about 2,000 in 1975 to less than 900, he said. Akzo's acquisition of ICI would be a continuation of this trend.

ICI rejected on Monday a 600 p/share takeover offer from Akzo.

Before submitting a higher bid, Akzo is waiting for any counter offers, according to reports in Reuters and The Times. The company could then make an offer in the range of 620-630 p/share,

Such acquisitions represent one of the few remaining growth strategies left for the coatings industry, Phillips said.

The coatings industry has allowed its product to resemble a commodity, he said. As a result, the market has matured, and the industry has lost much of its pricing power.

Consolidation would give the industry more control over prices and create economies of scale, Phillips said. "It's not a new trick."

If Akzo does buy ICI, eight companies would control about 65% of the market, Phillips said. That would leave roughly 880 other companies competing for the remaining 35%.

The largest eight would then compete to acquire the next largest coatings company, Phillips said.

Private investment firms could buy several of those smaller companies, strip them of their costs and resell them at a profit, he said.

If Akzo abandons ICI, it would likely search for another target, such as Valspar, Phillips said.

A Citigroup report also named Valspar as an acquisition target, although it did not name any possible buyers.

Valspar spokesman Mike Dougherty said he would not comment about the likelihood of the company becoming an acquisition target.

Meanwhile, ICI could become a buyer if Akzo's deal falls through. Sources named ICI as one of the likely bidders for SigmaKalon, which was put on the market by Bain Capital.

Other potential buyers include PPG Industries and Sherwin-Williams.
By: Al Greenwood
+1 713 525 2653

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