Akzo Nobel NV, Europe’s largest paintmaker, is being sounded out as a potential buyer of Axalta Coating Systems valued at $7 billion, according to people familiar with the matter.
Carlyle Group LP, which bought car-coatings company Axalta from DuPont Co. for $4.9 billion in February 2013, is open to bids alongside a planned initial public offering, said the people, who asked not to be identified because the plan is private. Investment bankers are speaking with Amsterdam-based Akzo Nobel to pitch a deal, although the Dutch company hasn’t indicated whether it will pursue Axalta, the people said.
The opportunity to expand Akzo Nobel’s profitable coatings business comes at a time when Chief Executive Officer Ton Buechner is focused on cutting costs in a revamp he started 19 months ago. Axalta could fetch more than $7 billion and Akzo Nobel and U.S. rival Sherwin-Williams Co. are seen as the best fits for the supplier of coatings to General Motors Co. and Daimler AG’s Mercedes-Benz cars amid few possible trade buyers, the people said.
“Akzo has to come with something strategically new,” said Gert Steens, an analyst at SNS Securities. “That there will be portfolio activity seems logical. Management has been replaced entirely, so you have a team of relatively young people fairly new to the company and asking each other what they want to achieve.”
Buechner already oversees a $7 billion coatings business that ranges from protective layers on packaging materials to friction-reducing coatings on airplanes, ships and Formula 1 cars.
The stock today gained as much as 0.8 percent in Amsterdam trading, valuing the company at 13 billion euros ($17 billion). Akzo Nobel, which in July reported better-than-estimated second-quarter earnings, has risen 4 percent from this year’s low on Aug. 8. It’s valued at 8.91 times this year’s estimated earnings before interest, taxes, depreciation and amortization, compared with 11.96 for PPG Industries Inc., according to data collected by Bloomberg.
“We do know about the business and we’ve heard of the IPO, but that’s all there is to say,” Akzo Nobel spokeswoman Diana Abrahams said by phone. Carlyle declined to comment.
Carlyle has hired Citigroup Inc. and Goldman Sachs Group Inc. to work on the IPO of Philadelphia-based Axalta that could raise an initial $1 billion, two people said on Aug. 13. Representatives for Citigroup and Goldman Sachs declined to comment at the time.
The private-equity company is willing to entertain offers ahead of the IPO as plans for the listing are still in the early stages with no target date set yet, said the people. An IPO is currently the main focus as it would allow the buyout firm to progressively cash in on a business predicted to grow revenue by 63 percent from last year to $7 billion by 2018.
A manager capable of running a listed chemical company is already in place. Axalta CEO Charlie Shaver built his career at TPC Group, Texas Petrochemicals, Arch Chemicals and Dow Chemical Co. In 2011, he took an operating partner role at buyout firm Golden Gate Capital Corp.
DuPont CEO Ellen Kullman’s disposal of the auto-coatings business last year came at the wrong time for Akzo Nobel. In February 2013, the same month Axalta was sold, Buechner unveiled his long-awaited new strategy for Europe’s biggest paint maker. Upon taking over in 2012, he threw himself into a strategic review with such zeal that he needed three months of leave for exhaustion.
Since his return, the CEO’s prime focus has been on tackling cutting costs linked to Akzo’s $17 billion acquisition of Imperial Chemical Industries in 2007 that created a diversified chemical and paint company manufacturing commodities such as polyvinyl chloride to the Dulux household paint brand. Rather than buying companies, Buechner, who is an engineer by training and has a MBA from IMD in Lausanne, has divested businesses to simplify the company to bring margins in line with those of PPG and Sherwin.
Steens said an acquisition to expand Akzo Nobel’s car coatings business might be too expensive as there are only a few targets, potentially forcing the company to pay a high multiple, he said.
“When you buy something really big in an already consolidated market, then you will pay the full multiple, which won’t do shareholders any good,” he said. “It could be similar to what we’ve seen when Akzo bought ICI.”