Akzo Nobel, Axalta Coating Abandon Merger Talks -- Update
November 21 2017 - 4:53PM
Dow Jones News
By Ben Dummett
Akzo Nobel NV and U.S. rival Axalta Coating Systems have
abandoned their merger talks after failing to reach an agreement on
terms around structuring the deal and other issues, according to a
person familiar with the matter.
The deal would have created a multibillion-dollar paints and
coatings giant. Industries ranging from automotive to mining use
coatings to prevent corrosion and improve durability.
The combination of the two companies could have boosted profit
growth by lowering raw material costs, eliminating overlapping
operations, expanding the combined entity's products and adding new
customers.
Now Akzo and Axalta face that challenge as separate companies at
a time of rising raw material costs and sluggish demand. In the
third quarter, Amsterdam-based Akzo reported a 13% drop in adjusted
operating profit, hurt in part by higher raw material costs.
Meanwhile, Axalta posted a 20% drop in adjusted net income in the
same period, amid lower volumes in North America.
Before initiating merger talks with Philadelphia-based Axalta,
Akzo had in April laid out a plan to boost earnings and its stock
price to fend off a $28 billion takeover attempt from U.S. rival
PPG Industries Inc. A key part of that plan called for Akzo to spin
off its specialty-chemicals business from its paints and coating
operations and distribute the majority of proceeds to shareholders.
Akzo had also targeted to boost its return on annual sales to about
15% by 2020 from about 12% currently. Both plans remain in place,
the person familiar with the matter said.
Axalta investors, at least initially, stand to lose the most
from the failed talks. The company's stock surged almost 17% to
$33.15 in New York trading when the merger discussions first leaked
in late October. The company's stock recently traded at $33.83
Tuesday, giving it a market value of about $8.23 billion. That
surge suggests a negative market response to the failed talks could
put pressure on Axalta to find an alternative partner.
Akzo's stock price has stayed relatively flat since knowledge of
the talks emerged. Its market value of about $23.05 billion is
already more than twice that of Axalta.
Still some analysts and investors have speculated that PPG
Industries may mount another bid for the Dutch company since Akzo
would be cheaper after spinning off the specialty-chemicals
business. Some analysts have estimated that business could be
valued at up to $10 billion.
PPG has publicly played down any interest in Akzo since
abandoning its offer this summer.
Akzo and Axalta's tie-up would have been a merger of equals and
Akzo's spinoff of the specialty chemicals business was a condition
of the deal.
Write to Ben Dummett at ben.dummett@wsj.com
(END) Dow Jones Newswires
November 21, 2017 16:38 ET (21:38 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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