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Akzoís Cost-Cutting CEO Solicited for $7 Billion Deal

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IMAGE: Ton Buechner, Chief Executive Officer of Akzo Nobel »


Akzo Nobel NV (AKZA)’s Chief Executive Officer Ton Buechner, 19 months into an overhaul ofEurope’s largest paintmaker, is being sounded out for a potential $7 billion purchase of a car-coatings company at a time when he has focused on cutting costs.

Axalta Coating Systems, the former DuPont Co. (DD) unit purchased by Carlyle Group LP (CG) for $4.9 billion in February 2013, could fetch more than $7 billion as the buyout owner contemplates bids alongside a planned initial public offering, three people familiar with the matter said. Amsterdam-based Akzo Nobel hasn’t indicated whether it will pursue Axalta, according to the people, who asked not to be identified because details of the plan are private.

Akzo Nobel and U.S. rival Sherwin-Williams Co. (SHW) are seen as the best fits for the U.S. supplier of coatings to General Motors Co. (GM) and Daimler AG’ Mercedes-Benz cars amid few possible trade buyers, the people said. Investment bankers are speaking with executives at Akzo Nobel to pitch the transaction, said two of the people. As cost savings help improve profitability, investors are starting to ask what growth strategy will follow.

“Akzo has to come with something new strategically that’s ambitious,” said Gert Steens, an analyst at SNS Securities. “That there will be portfolio activity seems logical. Management has been replaced entirely, so you have a team of relatively young people fairly new to the company and asking each other what they want to achieve.”

Formula 1

Buechner already oversees a $7 billion coatings business that ranges from protective layers on packaging materials to friction-reducing coatings on airplanes, ships and Formula 1 cars.

The stock today gained as much as 0.2 percent in Amsterdam trading, valuing the company at 13 billion euros ($17 billion). Akzo Nobel, which in July reported better-than-estimated second-quarter earnings, has risen 4 percent from this year’s low on Aug. 8. It’s valued at 8.91 times this year’s estimated earnings before interest, taxes, depreciation and amortization, compared with 11.96 for PPG Industries Inc. (PPG), according to data collected by Bloomberg.

“We do know about the business and we’ve heard of the IPO, but that’s all there is to say,” Akzo Nobel spokeswoman Diana Abrahams said by phone. Carlyle declined to comment.

Carlyle has hired Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS) to work on the IPO of Philadelphia-based Axalta that could raise an initial $1 billion, two people said on Aug. 13. Representatives for Citigroup and Goldman Sachs declined to comment at the time.

IPO Focus

The private-equity company is willing to entertain offers ahead of the IPO as plans for the listing are still in the early stages with no target date set yet, said the people. An IPO is currently the main focus as it would allow the buyout firm to progressively cash in on a business predicted to grow revenue by 63 percent from last year to $7 billion by 2018.

A manager capable of running a listed chemical company is already in place. Axalta CEO Charlie Shaver built his career at TPC Group, Texas Petrochemicals, Arch Chemicals and Dow Chemical Co. In 2011, he took an operating partner role at buyout firm Golden Gate Capital Corp.

DuPont CEO Ellen Kullman’s disposal of the auto-coatings business last year came at the wrong time for Akzo Nobel. In February 2013, the same month Axalta was sold, Buechner unveiled his long-awaited new strategy for Europe’s biggest paint maker. Upon taking over in 2012, he threw himself into a strategic review with such zeal that he needed three months of leave for exhaustion.

Asset Sales

Since his return, the CEO’s prime focus has been on tackling cutting costs linked to Akzo’s $17 billion acquisition of Imperial Chemical Industries in 2007 that created a diversified chemical and paint company manufacturing commodities such as polyvinyl chloride to the Dulux household paint brand. Rather than buying companies, Buechner, who is an engineer by training and has a MBA from IMD in Lausanne, has divested businesses to simplify the company to bring margins in line with those of PPG and Sherwin.

Steens said an acquisition to expand Akzo Nobel’s car coatings business might be too expensive as there are only a few targets, potentially forcing the company to pay a high multiple, he said.

“When you buy something really big in an already consolidated market, then you will pay the full multiple, which won’t do shareholders any good,” he said. “It could be similar to what we’ve seen when Akzo bought ICI.”

Article Credit: Bloomberg

Updated 5 Years ago

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Tags:     Akzo Nobel NV     Ton Buechner     Sherwin-Williams Co     Gert Steens     Charlie Shaver     Ellen Kullman