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Akzo gains market leadership, but could lose shareholder trust

While we have oft en been amused by the British stiff upper lip, this trait has also done them good at times. The latest instance is acquisition of UK-based chemicals company ICI by Akzo Nobel. ICI rejected offers by Akzo twice, playing hard to get till the deal was closed at a cash offer of 670 pence per share, valuing the company’s ordinary share capital at nearly $16 billion. 

Chances of a better rival bid are low, as ICI has already been grossly overvalued (premium of 35% over ICI’s average closing price for the last six months). Besides, an additional side deal has been finalised where Akzo’s partner, Henkel, would buy the National Starch Business of ICI for $4 billion. For Akzo, it had become unavoidable, with their arch rival PPG industries taking over SigmaKalon to expand their coatings portfolio. Commented Akzo Nobel CEO Hans Wijers, “We will create a leading global coatings & specialty chemicals company with a diversified geographic presence....” 

Analyst Wim Hoste, KBC Securities, told B&E, “With ICI’s operations in Asia & eastern Europe that offer good growth markets, Azko can benefit to a great deal and generate good cash flows.” Akzo will also benefit from ICI’s global presence with around one third of revenues coming from emerging markets like Asia Pacific & Latin America, 40% in America and the rest from Europe. According to the Global Coatings Report (2006), annual growth by value during 2005-2010 will average 5.4% as against 2.7% during 2001-2005. 

It’s a bonanza for ICI, but remains a very expensive acquisition for Akzo, which is why Akzo share prices have been in a state of free fall. On August 20, Akzo shares closed at $72.94, a drop by 7% from their value on August 13. The company will still have to justify the price to shareholders, which may not be a cakewalk. One shareholder group, TPG Axon, which holds 3.5% stake in Akzo has also criticised the high exposure of ICI to the US, with its falling housing market. Agrees Wim, “Akzo will have to (read aggressively!) tap revenue & cost synergies to justify the huge amount.” Guess they will need to demonstrate a stiff upper lip now, provided they have one!

Edit bureau: Aditi Soni 

For Complete IIPM Article, Click on IIPM Article  

Source : IIPM Editorial, 2007 

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative 

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