Akzo paints ICI into a corner

Chemistry and Industry, August 27, 2007 by Patrick Walter

The former bellwether of the UK economy, Imperial Chemical Industries (ICI), has at last fallen to the Dutch healthcare, chemicals and coatings producer Akzo Nobel after a long 'will-they-won't-they' saga (C&I 2007, 15, 4).

Akzo Nobel's offer of 670p a share finally won over ICI shareholders after talks that began at 549p a share and saw the penultimate offer of 600p a share rejected as undervaluing the company. The new offer values the company at 8.1bn [pounds sterling]. John McAdam, ICI's ceo, said: 'Akzo Nobel has today made a compelling offer which delivers full value for ICI, reflecting ICI's strong future growth prospects and strategic opportunities.'

But not all of Akzo Nobel's shareholders are reported to be happy with the deal for ICI, with the US fund TPG-Axon, which holds 3.5% of Akzo Nobel's shares, saying that the deal overvalued the company at a high point in the market cycle. Kumaraguru Veerasamy, an analyst at Frost and Sullivan, said he can understand some shareholder's criticism of the deal but said that the price for the company has increased tremendously and that ICI is getting an excellent deal.

The sale of Quest, ICI's fragrances business, in late 2006 had fuelled speculation of a possible takeover bid and Akzo's sale of Organon BioSciences to Schering Plough left it with a war chest of $14.4bn (10.7bn [euro]) for acquisitions (C&I 2007, 6, 9).

ICI, which coined words like perspex and plastic that have entered the common lexicon, was a tempting target for Akzo Nobel because of the opportunity to achieve synergies between ICI's Dulux paints and Akzo's Crown paints. Veerasamy said: 'The jewel in ICI's crown is the paints segment, thus by acquiring this brand Akzo would be a formidable player in the high tier paints segments.' Akzo Nobel believes it can potentially save 280m [euro]/year by merging parts of their paints businesses but has admitted that this will lead to job losses. However, Dulux and Crown combined control more than 50% of the UK's paint market, leading some analysts to speculate that Crown paints, which holds the smaller share, will be disappearing from UK shelves to avoid a run-in with the monopolies commission.

The two companies have agreed that, on completion of the deal, ICI will sell its National Starch division to help fund Akzo's increased often Veerasamy says that the sale of National Starch to German household products company Henkel for 2.7 bn [pounds sterling] makes sense as Akzo has few interests in this field.