Nippon Paint bid upends Akzo Nobel-Axalta merger talks

Nippon Paint has gate-crashed friendly talks between a US and a Dutch rival by submitting an all-cash takeover bid for Axalta Coating Systems, in a rare intervention by a Japanese company in cross-border dealmaking.

According to people close to the situation, Nippon Paint submitted an offer this week that valued Axalta at a much higher premium to what was being contemplated by the US group as it held talks with Amsterdam-based Akzo Nobel.

In response, Axalta and Akzo Nobel announced late on Tuesday that they had terminated discussions about a merger after failing to reach mutually agreeable terms.

Axalta has not confirmed the interest from Nippon Paint, saying only that it “continues to pursue other value-creating alternatives”.

Nippon Paint confirmed on Wednesday afternoon that it had made “a proposal” but did not give details and cautioned that there was no certainty of any deal.

As in other industries in Japan, paintmakers are seeking overseas expansion in a bid to escape shrinking domestic markets, boost growth abroad and take advantage of ultra-low borrowing rates. Nippon Paint and smaller rival Kansai Paint both publicly have stated a desire to secure a stronger place in the top tier of the global coatings business.

A wave of merger and acquisition activity has radically reshaped the wider chemicals industry over the past few years, as companies have sought greater scale and cost savings at a time of weak demand growth.

Shares in US-listed Axalta fell nearly 15 per cent in after-market trading on Tuesday, only to recover quickly following news of the bid by Nippon Paint, which was first reported by Reuters. Axalta has a market value of $8.3bn.

Nippon Paint shares dropped 4.5 per cent on Wednesday morning in Tokyo before trading was suspended, giving it a market value of $10.2bn. Analysts said any deal for Axalta would put further pressure on Nippon Paint’s stock price, but that it would fulfil an important management ambition.

For Akzo, the unsuccessful Axalta talks are the latest setback in a year that has seen it come under pressure to break up its business, fend off multiple unwanted takeover bids from another US rival PPG Industries and lose its chief executive and chief financial officer.

Akzo and Axalta were discussing an all-stock deal that would have valued Axalta at a low premium, people involved in those talks said previously. However, this would have been complicated because of the gulf in size between the two groups. Akzo’s decorative paints and performance coatings divisions together had sales of €9.5bn in 2016, while Axalta’s total revenues were $4.1bn.

“After pursuing a potential combination of Axalta and Akzo, we concluded we could not negotiate a transaction on terms that meet our criteria,” said Charles W. Shaver, Axalta’s chairman and chief executive. “Any transaction we ultimately agree to needs to generate superior long-term value for Axalta shareholders as compared to the continued execution of our strategic plan.”

Akzo’s flirtation with Axalta was seen by some partly as a way to deter PPG, which under Dutch takeover rules can table another bid in December when a six-month “cooling-off” period expires. The talks centred on a possible combination of Axalta with Akzo’s paint and coatings division.

Akzo meanwhile said it was on track to separate its speciality chemicals division and return the vast majority of proceeds to shareholders, a decision that was taken as part of its defence against the advances from PPG.

The company added that it was committed to achieving its increased financial targets, which were also laid out as part of a rearguard action against PPG.