Akzo Nobel to Consider Future of U.S. Paint Unit Once Overhaul Is Complete

Akzo Nobel NV, the world’s biggest paint maker, will examine all options for its U.S. Glidden brand once an overhaul to improve margins is completed, according to Chief Executive Officer Hans Wijers.

“We’re very committed to building that business, to make it healthy and profitable again,” Wijers said on a conference call today. “And once we’ll get there, we’ll take another close look at all the strategic options on the table.”

Selling or finding a partner for Glidden could provide a 9 percent boost to Akzo’s market value, Nomura analyst Jennifer Barker said in a note. The Dutch company acquired the U.S. unit through its $15.9 billion purchase of Britain’s Imperial Chemical Industries at the start of 2008, prior to the slowdown in consumer spending and construction that hurt paint demand.

Wijers last year cut jobs in the U.S. and closed company- owned paint stores to combat higher raw-material costs. Revenue from household paint -- which includes the Martha Stewart Living line sold in Home Depot Inc. stores, as well as fillers and varnishes -- totaled 1.5 billion euros ($2 billion) in the Americas region last year.

“Akzo Nobel’s position in the U.S., especially the deco side, is relatively too weak compared with Asia and Europe,” said Tom Muller, an Amsterdam-based based analyst at Theodoor Gilissen Bankiers NV. “If you’re the market leader worldwide, then it would be best to also try to be that in the U.S. I expect Akzo to do additional takeovers in the U.S. by the end of this year or by the start of next year.”

Earnings Beat

Akzo said it’s continuing an overhaul of its decorative paint operations in Europe amid stagnant sales in the region. The owner of the Dulux paint brand reached its target of increasing profit to 14 percent of sales more than one year ahead of schedule. The company will give an update on its medium-term goals on Sept. 28.

“The developed markets remain challenging,” Wijers said. “Raw-material price pressure and shortages are expected to continue into the third quarter. We will keep a careful eye on the trading environment and costs will continue to be managed aggressively.”

Demand for performance coatings and specialty chemicals helped offset a weaker U.S. paint market, where Akzo Nobel competes with PPG Industries Inc.

Second-quarter profit beat analysts’ estimates. Net income was 273 million euros compared with 155 million euros a year earlier. That exceeded the 190 million-euro average estimate of 10 analysts in a Bloomberg survey.

Akzo, whose roots date back to 1777 when Jacob Holmblad of Denmark started a textile dye-maker, rose 4.7 percent to 46.36 euros as of 10:42 a.m. local time in Amsterdam trading, giving it a market value of about 11 billion euros.

Overall, sales advanced 13 percent to 3.91 billion euros in the quarter.

Takeovers

Akzo plans to invest in Brazil and southeast Asia to build out brands in those regions.

Selective acquisitions will continue, Chief Financial Officer Keith Nichols said on an analyst call. A priority is to protect liquidity given uncertainty in the financial markets, though there’s no ceiling on the size of an acquisition target, Wijers said.

Akzo agreed last month to sell the remnants of a food- starch business inherited during the purchase of ICI.

“We expect Akzo Nobel to be ready for additional takeovers,” Theodoor Gilissen’s Muller said in a note to investors. “We prefer strengthening of its position in the U.S. and especially in decorative paint.” He rates Akzo “hold.”

To contact the reporter on this story: Martijn van der Starre at vanderstarre@bloomberg.net

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