ICI and Akzo (2)

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It seems from the media comment that Akzo is likely to announce an agreed bid for ICI tomorrow (in order to meet Friday’s Takeover Panel deadline) of around £6.70 plus the dividend. Will this be the end of the story?

The share price suggests not, trading at c£6.30 as I write, some 7% below the likely bid price. As I wrote a month ago, Akzo remains as much prey itself as bidder, in this particular situation. Its €14bn cash pile from the sale of the pharma business has now attracted a large number of hedge funds onto the share register. They may well account for 30 – 40% of the shares, according to some reports I have seen.

They smell blood in the water, and don’t want a deal to be done. Instead, they want Akzo’s cash pile to be distributed to them. So will they vote it down? There have certainly been mutterings in the press from several of the funds about any move by Akzo to offer over their £6.50 estimate of top value for ICI.

One assumes that Azko is aware of the problem, and will make a gesture in their direction with a share buyback of at least €1bn. This should be enough, but who knows? And then, of course, if a bid is made, one or two commentators have also suggested that this could be the cue for another bidder to emerge. Allegedly both Dow and Reliance are said to be interested, particularly in the fast-growing Asian paint business, plus possibly others.

So although the odds must remain in favour of Akzo, the fat lady may not have sung yet, as they say in the movies.

9 August, 12:45 BST update. It has just been announced that the Takeover Panel has allowed an extension of the deadline to 13 August. The fat lady’s performance is, indeed, being delayed.

14 August update. Yesterday saw the delayed announcement of a bid effectively valuing ICI at £6.79/share. In addition, Akzo announced a €1.6bn share buyback, and promised ‘up to €3bn’ of further buybacks, starting in 2008. By raising the immediate buyback amount from the expected €1bn, and offering an additional buyback next year, they clearly think they have done enough to win approval from their shareholders. Today’s reaction in the financial press seems to support this judgement, as although a few shareholders seem to still oppose it, most seem to be in a mood of reluctant acquiescence. However, the share price has fallen significantly since the announcement, indicating that investors are not convinced that the deal will go ahead. The fat lady may be warming up for her performance, but has still not yet started to sing.

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