Akzo Nobel, Axalta Coating Abandon Merger Talks -- Update

By Ben DummettFeaturesDow Jones Newswires

Akzo Nobel NV and U.S. rival Axalta Coating Systems have abandoned their merger talks after failing to reach an agreement on terms around structuring the deal and other issues, according to a person familiar with the matter.

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

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

Axalta investors, at least initially, stand to lose the most from the failed talks. The company'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 recently traded at $33.83 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.

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.

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

(END) Dow Jones Newswires

November 21, 2017 16:38 ET (21:38 GMT)