Akzo Nobel’s Merger Plan With Axalta Set to Create PPG Deterrent

Akzo Nobel NV is exploring a combination with the biggest maker of car coatings, almost doubling the size of its paint business in a bid to create a deterrent should PPG Industries Inc. attempt another takeover as early as December.

The Dutch company said Monday it’s in “constructive discussions” regarding a merger of equals with Axalta Coating Systems Ltd. to create a leading global paints and coatings maker. Axalta, which has headquarters in Philadelphia, is the world’s largest maker of auto refinish paints, with a market value of $8.1 billion.

The U.S. coatings manufacturer is the “ideal poison pill” that would make Akzo Nobel “undigestable” for PPG, ING analyst Stijn Demeester said in a note, adding that any deal would have to overcome some hurdles in the companies’ valuations.

The move to combine with Axalta comes as the clock counts down to Dec. 1, when Akzo Nobel’s rival-turned-suitor PPG could make another run for the company under Dutch takeover rules. Akzo Nobel successfully rebuffed an unsolicited $29 billion buyout offer this year, coming under intense shareholder pressure in the process from activist investor Elliott Management Corp., which had pushed for tie up talks.

Akzo Nobel shares rose 0.6 percent to 77.92 euros at 12:16 p.m. in Amsterdam, taking gains to 31 percent this year and giving a market value of 20 billion euros ($23 billion).

Dutch paintmaker unveils plan for combination with U.S. rival

Akzo Nobel is under pressure because PPG could renew bid

Complicating the tie up talks with Axalta is Akzo Nobel’s planned separation of its 5 billion-euro revenue specialty chemicals business, a transaction pledged by the Dutch company as it battled against PPG. The carve out – which Akzo Nobel said Monday remains on track for April 2018 and is unaffected by the merger discussions — comes with the return of 1 billion euros in special dividends to be issued in December. Preparations are underway for either a spinoff or outright sale of the entire business, Chief Executive Officer Thierry Vanlancker said this month.

Akzo Nobel is looking to pay close to no premium in any deal with Axalta, a person familiar with the matter said over the weekend. Axalta, of which Warren Buffett’s Berkshire Hathaway Inc. is the largest shareholder, soared 17 percent in New York Friday after Reuters first reported the talks.

Axalta has posted two straight quarters of profit declines amid rising costs for paint ingredients. The company, formerly a unit of DuPont, would complement Akzo’s product lines, Michael J. Harrison, an analyst at Seaport Global Securities, said in a note. Axalta may sell for $40 a share, based on the 15-times earnings multiple paid by Sherwin-Williams Co. for Valspar Corp. earlier this year, he said.

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