UPDATE – PPG offer rejected: will Akzo Nobel stick with its “No”?


Update: Akzo Nobel rejects PPG's second offer

PPG is not giving up. On 22 March the US-based company sent a new offer of EUR 24.5 billion to buy Akzo Nobel. The Dutch company rejected the offer as it still “substantially undervalues” it and “is not in the best interests of shareholders”. It also said there was a “significant culture gap” between the companies. According to Akzo, the transaction would include synergies which can be expected to result in the restructuring of the combined employee base, leading to job losses.

Latest articles by BBC.com and Bloomberg.com state Akzo investors have urged the coatings maker to hold takeover talks.

PPG and Akzo Nobel under pressure

PPG's agressive move shows it seeks to defend its current position as the largest coatings producer worldwide – if possible before the Sherwin-Williams and Valspar acquisition is completed. Until now, Akzo and PPG have stayed on the sidelines amid a spate of large deals in the paint and chemicals industries. But the Sherwin-Williams move is putting pressure on both companies. It is only a matter of time until PPG will announce an acquisition – or more than just one.

But it is also Akzo's turn to start a move. The divestment of its specialty chemicals business could be read as a preparation for a significant move to strengthen the core business through an acquisition. Rumours about Axalta might come up again or maybe the Dutch company is even prepared for larger transaction. By rejecting the second offer, the entire story is not off the table. There will be a move by PPG, Akzo or from both in near-time. What do you think? What scenario(s) could be realistic?

PPG's first offer “substantially undervalued” Akzo

According to Akzo Nobel, PPG’s offer of EUR 21 billion “substantially undervalued” the company. However, the decision leaves room for speculations. The offer was rejected as it undervalued the business. What if PPG raises the offer? Akzo Nobel did not comment on the question.

Rejecting the offer does not mean the transaction is off the table. Will there be another offer? PPG published a statement reading: “PPG, in conjunction with its financial and legal advisors, has devoted significant time and resources to analyzing a potential combination of PPG and Akzo Nobel and is confident in its ability to execute and complete the proposed transaction and to obtain all necessary regulatory approvals”. This clearly shows the US American company will most likely attempt to place another takeover bid for Akzo Nobel.

What would such a deal mean for the industry?

The ten largest global coatings producers hold a market share of roughly 60%. The remainder of 40% is estimated of being split among 7,500 companies. Akzo Nobel and PPG compete for the top seed. Akzo Nobel posted sales of EUR 14.2 billion and an operating profit of 1.5 EUR billion in 2016. PPG posted sales of USD 14.5 billion and an operating profit of USD 1.9 billion last year. But they will both lose the number one spot once the Sherwin-Williams and Valspar deal closes.

So, if these two deals close the market share of 60% will be split among eight companies. More dominance in the market for the big players and eventually less competition in the industry. This might lurk the danger of becoming a rather sluggish industry, because only fierce competition keeps you moving. And being on the move by innovating and finding new ways has made the coatings industry so successful during the last decades.

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