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PPG Buys AkzoNobel Paints for $1.05B

Monday, December 17, 2012

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Reshaping the U.S. architectural coatings market in one stroke, PPG Industries has purchased AkzoNobel's North American decorative paints business for $1.05 billion, the companies disclosed Friday (Dec. 14).

The acquisition immediately more than doubles PPG's North American architectural coatings presence and expands its company-owned store network on the continent to about 1,000 stores.

That will bring stiff competition for Cleveland-based Sherwin-Williams Co., which now has about 36% of the U.S. decorative paints market.

"The acquisition will immediately and substantially expand PPG’s distribution footprint in the North American architectural coatings industry," PPG reported in a Q&A about the transaction.

Before Friday's acquisition, PPG had 15% of that market; AkzoNobel, 13%, according to analysts.

Portfolio Transformation

The transaction includes prominent brands Glidden, Flood, Liquid Nails, Sico and CIL. PPG also will license Dulux and Devoe architectural coatings and Sikkens architectural wood products. AkzoNobel's North American Decorative Paints business had revenues of $1.5 billion in 2011, about 7 percent of the company's total annual revenue.

 

The $1.05 billion deal will give PPG Industries ownership of many of North America's best-known paint and related brands.

Boards of directors of both companies have approved the deal, which is expected to close early in the second quarter of 2013, subject to regulatory approvals, PPG announced.

AkzoNobel said in a statement that it had decided to "divest" the decorative paints business "following a successful four-year turnaround."

"AkzoNobel has made the strategic choice to focus its Decorative Paints Business Area on key markets in Europe and its strong positions in high-growth regions," the company said.

PPG chairman and CEO Charles E. Bunch said the acquisition "continues the accelerated pace of our business portfolio transformation through further expansion of our coatings businesses."

PPG will license Dulux and Devoe architectural coatings and Sikkens wood products.

"It is also an attractive way to significantly increase our scale in the North American architectural paint market, which we anticipate will benefit from a prolonged construction market recovery.”

Ups and Downs

Worldwide, AkzoNobel is the largest paint and coatings company, but its fortunes have been on shaky ground for more than a year.

Most notably and most recently, the company reported a $3.1 billion loss in the third quarter, due largely to a massive impairment charge in its Decorative Paints sector. The company also ended fiscal year 2011 on a low note.

AkzoNobel's leadership has also been on uncertain footing this year, with new CEO Ton Büchner succeeding longtime helmsman Hans Wijers in April, then abruptly announcing a medical leave in September.

The leave was originally ascribed to "fatigue" and was supposed to be brief, but it was later lengthened and the company announced that Büchner was being treated for an undisclosed condition. Büchner returned to his post only 10 days ago.

Meanwhile, PPG has been growing steadily stronger in its No. 2 global position, completing a banner year in 2011, racking up a series of record quarterly earnings in 2012, and recently shoring up its future pigment security through a major titanium dioxide licensing deal with China-based Henan Billions Chemicals Co. Ltd.

The Package

The acquisition includes all AkzoNobel North American architectural coatings manufacturing and distribution facilities, paint stores, product lines and employees related to the production, sale and distribution of architectural coatings in the United States, Canada and the Caribbean, PPG said.

Bunch said the deal:

  • “Notably expands our customer reach in all three major North American architectural paint distribution channels”;
  • "Complements PPG's national home center strategy by extending our branded paint product offerings to more than 8,000 retail outlets”; and
  • "Enhances our already strong presence in the independent paint dealer channel.”

Büchner called the agreement "a good outcome for all stakeholders."

Charles E. Bunch

AkzoNobel executives were all smiles last year in announcing that Ton Büchner (far left) would succeed Hans Wijers, but the company has struggled since then. PPG chairman and CEO Charles E. Bunch, meanwhile, has overseen a year of growth and record earnings.

"Over the past four years, the team has done a great job in turning the North American Decorative Paints business around," he said. "I am pleased that we have found a respected company to take over the business.”

Immediate $60M Improvement

PPG anticipates an immediate, and significant, financial bounce from the deal, said Bunch.

"We expect to achieve significantly improved net operating earnings of about $160 million for the acquired business over a three-year period, including a $60 million improvement immediately upon closing and a total of $90 million by the end of the first year,” he said.

The $60 million figure includes costs that PPG will not incur due to defined benefit pension expense, amortization expense relating to prior AkzoNobel acquisitions, and various administrative costs that will not transfer to PPG.

The expected savings of $30 million by the end of the first year will stem from "cost synergies" as the company streamlines administration, distribution and manufacturing.

Also Friday, PPG annnounced that it would restart its stock buyback program once it completes the sale of its commodity chemicals business early next year.

Said Bunch: “The acquisition of the AkzoNobel North American architectural coatings business and planned share repurchases are both consistent with PPG’s long-standing heritage of growing our earnings and returning additional cash to our shareholders."

   

Tagged categories: Acquisitions; AkzoNobel; Architectural coatings; Business matters; Decorative coatings; Market share; PPG; Sherwin-Williams; Wood coatings

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