News Focus: AkzoNobel rejects PPG; eyes spin-off
AkzoNobel has rejected an unsolicited takeover bid made by US-based PPG Industries, and has decided to review strategic options to separate its specialty chemical business, the Dutch paints and coatings firm said on 9 March.
PPG was offering to pay €54.00 in cash and 0.3 of its own shares for every AkzoNobel share, corresponding to a value of €83.00 per share as per 28 February, AkzoNobel said.
“The unsolicited proposal we received from PPG substantially undervalues our company and contains serious risks and uncertainties,” said Ton Buchner, the CEO of AkzoNobel. The proposal is not in the interest of AkzoNobel’s stakeholders, including its shareholders, customers and employees, and we have unanimously rejected it,” he added.
AkzoNobel will now consider various alternative ownership structures for the specialty chemicals business as part of the separation plan, including, but not limited to, “the establishment of an independent listed entity”, the company said.
AkzoNobel will try to boost value through specialty spin-off
“We are reviewing strategic options to separate it from the company to create focus for both Specialty Chemicals and the Decorative Paints and Performance Coatings group, allowing them to build further on their respective leadership positions,” Buchner said.
AKZONOBEL/PPG DEAL MAKES SENSE
A merger between PPG and AkzoNobel would be “credible and potentially powerful” but higher pressure for the Netherlands-based company to perform after rejecting a takeover bid is also good news for shareholders, analysts Bernstein said on 9 March.
AkzoNobel announced plans to review strategic options for the separation of its specialty chemicals business on 9 March after rebuffing an unsolicited takeover bid by its US-headquartered rival.
There would be strong advantages for both parties in the event of a merger, Bernstein said, combining the two global leaders in a fragmented market with $600m of annual savings – 2% of sales for a combined company – and limited decorative paints sector divestitures likely to be required. However, the rejection of the takeover places greater pressure on Akzonobel to perform as a standalone entity, which is good news for shareholders, Bernstein said.
The announcement by AkzoNobel of plans to spin off its specialty chemicals division, representing around 40% of the company’s earnings before interest, taxes, depreciation and amortisation (EBITDA), is a first step in that process, Bernstein added.
“We expect management will continue to deliver operational improvements while shifting focus to profitable growth… volume growth, especially in EU, will be a positive catalyst for stock re-rating,” Bernstein said in an investor note.
“We could see the merit of a tie-up with PPG, which is feasible in our view. Alternatively, AkzoNobel will now be under greater pressure to perform,” the researcher added. A sale of spin-out of specialty chemicals operations would re-position AkzoNobel as a pure-play paints and coatings player.
Hiving off that part of the business would allow for greater focus and investor clarity on AkzoNobel’s different divisions, according to company CEO Ton Buchner.
“We are reviewing strategic options to separate it from the company to create focus for both Specialty Chemicals and the Decorative Paints and Performance Coatings group, allowing them to build further on their respective leadership positions,” he said.
AkzoNobel’s specialty chemicals operations represented its strongest-performing division in the fourth-quarter 2016, with earnings before interest and taxes (EBIT) rising 31% year on year to €118m.
Over the same period, decorative paints EBIT rose 11% to €51m and performance coatings earnings fell 21% drop to €152m.
OFFER HIGHLIGHTS SLOW GROWTH
Analysts at JP Morgan Cazenove say the offer will highlight to shareholders the intrinsic value of a business which has suffered from a low growth, deflationary environment.
They believe that with cost and raw material savings of up to $1.1bn, the acquisition would fill gaps in PPG’s product portfolio. They suggest there would probably be some anti-trust enforced divestitures of up to $1bn sales, $150m EBITDA, as a first estimate.
“From Akzo shareholders’ perspective the company is emerging from a period of wholesale restructuring, but has not been rewarded in terms of valuation due in part to sluggish end markets and the lack of appreciable growth dynamics.”
The analysts believe AkzoNobel management could block any unwanted takeover offer through a shareholder resolution which would allow the Supervisory Board to create a ‘poison pill’ by granting a call option to acquire sufficient preferred stock to exercise voting control of the company.
“So for a deal to proceed an acquirer would have to offer comfort on both the valuation and presumably on other issues like jobs. For now, however, and in the absence of more details, Akzo looks well placed to benefit from renewed investor focus,” said the analysts in a note published on 9 March.
AKZONOBEL SPECIALTY CHEMICALS DIVISION
- 2016 revenue €1,718m (-5.7% on 2015)
- polymer chemistry ethylene and sulphur derivatives
- 2016 revenue €1,202m (flat on 2015)
- includes high purity salt, chlorine, caustic lye, hydrochloric acid, chloromethanes and monochloroacetic acid
- 2016 revenue €1,030m (-2.8% on 2015)
- all types of surfactants including cationic, anionic and non- ionic
Pulp and performance chemicals
- 2016 revenue €921m (-6.8% on 2015)
- includes bleaching chemicals and systems, colloidal silica solutions, expandable microspheres, and silica packing and columns