Axalta And Akzo End Talks On Merger -- WSJ

By Ben Dummett Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 22, 2017).

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Akzo Nobel NV and U.S. rival Axalta Coating Systems said Tuesday they abandoned talks to merge after failing to agree on terms for the proposed tie-up.

The failure of the talks, which was earlier reported by The Wall Street Journal, came after Japan's Nippon Paint Holdings Co. made a cash bid for Axalta on Tuesday that prompted the Philadelphia-based company to walk away from Akzo, according to a person familiar with the matter.

It wasn't clear if Nippon's offer will lead to a deal, but its efforts and those of Akzo to join forces with Axalta are part of a broader consolidation trend in the chemicals industry as companies seek avenues for growth and cost savings.

LyondellBasell Industries NV, for example, made a takeover approach for Braskem SA that could value the Brazilian petrochemical company at more than $10 billion and give the Netherlands-based chemicals-and-polymer producer access to Latin American markets, the Journal reported last month.

Through the Axalta deal, Akzo would have created a multibillion-dollar paints-and-coatings giant. Industries ranging from automotive to mining use coatings to prevent corrosion and improve durability.

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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 the higher raw-material costs. Meanwhile, Axalta posted a 20% drop in adjusted net income in the same period, amid lower volumes in North America.

"We remain focused on our strategic options...to improve profitability in the future," Thierry Vanlancker, Akzo's chief executive, said in a statement.

Before initiating merger talks with 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 also had targeted a boost in its return on annual sales to about 15% by 2020 from about 12% currently. Both plans remain in place, a person familiar with the matter said.

Axalta'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 closed at $33.87 on 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.

Axalta signaled confidence in its outlook despite the breakdown in talks, noting in a statement that it "continues to pursue other value-creating alternatives." Its statement made no mention of the Nippon offer.

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.

--Dana Cimilluca contributed to this article.

Write to Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

November 22, 2017 02:47 ET (07:47 GMT)