Coatings business for sale a better fit for AkzoNobel than BASF – analyst

Source: ICIS News

2016/02/11

AkzoNobel headquartersLONDON (ICIS)--The industrial coatings business units that AkzoNobel is in talks to acquire from BASF would fit into the Netherlands-based company’s portfolio more comfortably than it does for its current owner, an analyst said on Thursday.

AkzoNobel is in talks to acquire BASF’s international coil coatings operations, alongside foil and paint, wind and general industry coatings, while BASF would retain the automotive and transport parts of its coatings division.

“The rationale behind [the potential sale] is that BASF doesn’t seem to feel that it has critical mass in the business. It claims to be number three in Europe, but is way off from [that] when it comes to global production of coil coatings,” said Oliver Schwarz, chemicals equity analyst at Warburg Research in Germany.

According to sources familiar with the situation, around five players are in talks for the potential acquisition of the business, with US firm PPG also said to be looking into a deal.

Part of BASF’s functional materials and solutions arm, coatings generated revenues of around €3bn in 2014, with the bulk of sales generated from the automotive sector.

Coil coatings generates sales of around €500m, according to sources, with earnings before interest, taxes, depreciation and amortisation (EBITDA) of between 10-12% and 10-14% of that total, depending on the year. It is understood that the unit could be expected to raise around €500m in a sale.

“It’s part of the coatings business but it has not that many ties to the key automotive business of BASF’s franchise,” Schwarz noted.

AkzoNobel has stated that that it could pursue bolt-on acquisitions to supplement its strategy of organic growth after cutting debt and strengthening its balance sheet.

A divestment would not be a drastic move for BASF, but would be in keeping with AkzoNobel’s strategy, according to Bernstein Research chief chemical analyst Jeremy Redenius.

“It’s a really small business at BASF, [and would be] a bolt-on acquisition to strengthen the position of industrial coatings,” he said.

AkzoNobel derives almost half its revenues from industrial coatings, particularly marine and construction coatings, and the coil business would fit in with its existing operations in the sector, according to Schwarz.

“Coil coatings would fit perfectly with the coil coatings activities AkzoNobel already has, because that is very much attached to the construction coatings that they offer,” he said.

PPG, which acquired AkzoNobel’s North American decorative paints business for $1.05bn in late 2012, did not immediately responded to requests for comment.