Saturday, January 12, 2013

Akzo Nobel Offers Premium For Courtaulds (1998)

This is a comprehensive story of the Exodus deal noting the exceptional shareholder value obtained by Gordon Campbell.

Akzo Nobel made an agreed-upon offer of 450 pence ($7.51) per share for Courtaulds on April 20, and analysts do not expect a counter bid.
The offer values Courtaulds at £1.83 billion ($3 billion), about 91 percent of its sales of £2.1 billion in the year until the end of March, and 11 times operating profit of £166 million.
The offer also represents a premium of 66 percent above the share price of 271.5 pence on February 24, when Courtaulds announced plans to split its coatings and sealants and fibers and chemicals operations into two separate entities, while selling off its polymer products business.
The offer is 25 percent above the share price of 361 pence at the end of March, shortly before Akzo Nobel revealed it was discussing a possible takeover with Courtaulds.
Courtaulds' board is recommending the offer to shareholders on the grounds that it is consistent with the strategy behind the company's original demerger plans.
"Our proposal to demerge the component parts of Courtaulds was designed to enhance shareholder value," says Courtaulds CEO Gordon Campbell. "This offer adds further value and certainty for Courtaulds' shareholders. For employees, the creation of stronger businesses in both the coatings and fibers industries can only be in their best interests."
Cees van Lede, Akzo Nobel's chairman, says that the acquisition "fits perfectly" with his company's strategy of establishing itself as a world leader in coatings with a strong base in Asia.
"Additionally, it firmly establishes a sound basis for an independent fibers operation--among the top two in the world--that can withstand the pressures of the market and can stand on its own two feet," Mr. van Lede adds.
Mr. van Lede told an Amsterdam press conference that Courtaulds is the "Rolls-Royce of Great Britain's paint and fibers industry."
Although the cost of the acquisition will be more than half financed by extra debt with the balance coming from a mix of equity and equity-linked funds, Akzo Nobel expects the deal to increase earnings per share within the first full year of ownership.
Most analysts last week were not expecting any other company to make a competing bid, mainly because it would have to include Courtaulds' troubled fibers business.
Akzo Nobel is considered to be one of the few companies able to take over the whole of Courtaulds while gaining benefits from its fibers operations.
The combination of Akzo Nobel's and Courtaulds' coatings businesses will create the world's largest coatings operation. On the basis of last year's sales figures, it would have sales of Fl 11.5 billion ($5.7 billion), ahead of Sherwin Williams with Fl 9.5 billion; ICI, Fl 7 billion; and PPG, Fl 6 billion.
Akzo Nobel plans to merge the fibers activities of itself and Courtaulds into a separate entity, which will then be spun off or demerged under the continued ownership of Akzo Nobel shareholders.
The company plans to continue with Courtaulds' disposal of its polymer products division, which in 1996-97 had sales of £237 million, mainly from plastic and laminate tubes, rigid packaging and performance films. A number of companies have already shown an interest in buying the business.
Once the new fibers operation is spun off, Akzo Nobel will have total sales of Fl 23.6 billion, 48 percent of them in coatings, 32 percent in chemicals and 20 percent in pharmaceuticals. Around 38 percent of operating income of Fl 2.6 billion would be derived from coatings, 35 percent from pharmaceuticals and 27 percent from chemicals.
In coatings, the biggest gains for Akzo Nobel will be in its stronger market positions in industrial coatings and in the Asia-Pacific region.
Its share of the Asia-Pacific market will jump from 3 percent to 10 percent because of Courtaulds' expansion in the region.
Akzo Nobel will continue to be the No. 1 producer of decorative paints in Europe, as well as the leader in wood coatings in both Europe and the Americas, and the No. 3 producer of auto refinishes in Europe.
The Courtaulds takeover will make Akzo the global leader in marine and yacht coatings, and the leader in protective coatings in Europe and Asia-Pacific, as well as No. 3 in that market in the Americas, and No. 2 in packaging in Europe and Asia-Pacific.
The combined coatings business will also be the leader in powder coatings in Europe and Asia-Pacific, and No. 1 in coatings in the Americas and joint leader in Europe.
There could be competition difficulties with aerospace coatings in which Akzo Nobel, through a joint venture with Dexter Corporation, and Courtaulds, dominate the market. The new operation will be the market leader in all three regions of the world.
One option could be for Akzo Nobel to sell its share in the Akzo-Dexter venture. "This could be seen as a possible solution to any problem with the competition authorities, particularly with the European Commission," says an Akzo Nobel official.
With fibers, Akzo Nobel wants to create a stand-alone company with sales of around Fl 6 billion and a target for return of capital employed of more than 10 percent.
It would be in the top three globally for performance fibers, non-wovens, membranes and porous materials and cellulose lyocell fibers, all of which offer potential for growth with high margins, according to Akzo Nobel.
Strong positions in industrial fibers, acrylics, acetate flakes and tow and acetate yarn would generate cash for investment in higher growth sectors.
The operations in viscose filament yarn, in which Akzo Nobel is the global leader, and viscose staple, in which Courtaulds is number three worldwide and number two in Europe, would be restructured through cost-cutting measures and reductions in capacity, Akzo Nobel says.

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