Akzo Nobel confirms merger talks with Axalta Coating of US

31 Oct 2017

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Dutch paints maker Akzo Nobel has confirmed merger talks with smaller US rival Axalta Coating Systems Ltd to create a $30 billion company.

The deal would be the first major deal by chief executive Thierry Vanlancker, who took over the reins at the company in July. Earlier, Akzo had rejected a €26 billion takeover offer from US rival PPG Industries.

According to a report by Reuters on Friday, Akzo had approached Axalta about a possible merger, which lifted Axalta's shares 17 per cent higher.

In a brief statement Akzo said the talks would not affect its decision to sell its Chemicals Divisions, valued at € 8-10 billion and reiterated promises to return the "vast majority" of proceeds to shareholders.

Akzo's market capitalisation stands at €19.5 billion  while Axalta is worth $8.1 billion at Friday's closing price of $33.15.

Akzo said the merger with Axalta, whose truck coatings business fills a gap in its portfolio, would "create a leading global paints and coatings company."

Vanlancker has cut targets twice in the space of six weeks, and blamed hurricane Harvey, increasing material costs and adverse trends at its marine coatings business.

The company also faced lawsuits earlier this year from shareholders over its decision to reject PPG. Meanwhile, Reuters reported, citing a person familiar with the matter as saying that Akzo is looking to pay almost no premium in any deal with Axalta.

Axalta has reported profit declines over two successive quarter with increasing costs of paint ingredients.

According to a note by Michael J Harrison at Seaport Global Securities, the company, which was earlier a unit of DuPont, would complement Akzo's product lines. He added that Axalta might sell for $40 a share, on the basis of 15-times earnings multiple paid by Sherwin-Williams Co for Valspar Corp earlier this year.

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