Akzo Nobel Lowers $24 Billion Pension Risk by Raising PayElco van Groningen
Akzo Nobel NV backed a plan to transfer about 25 percent of its pension liabilities, a move that will lead to a bigger-than-estimated outlay for the world’s largest maker of decorative paints in return for improving its financial profile.
Trustees of the ICI Pension Fund reached agreements on annuity buy-ins with Legal & General Plc and Prudential Retirement Income Ltd., the Amsterdam, Netherlands-based company said in a press release today. As a result, Akzo’s pension costs will rise by 25 million pounds ($41 million) a year from 2015.
The transaction means Chief Financial Officer Keith Nichols takes Akzo a step closer to resolving the company’s inflated pension liabilities, before his scheduled departure mid year. In aggregate, the agreements cover 3.6 billion pounds of pensions, with Goldman Sachs estimating the total liability standing at about 17.2 billion euros.
“There is still material pension exposure today but this is nonetheless a significant step forward,” Tim Jones, an analyst at Deutsche Bank, said in a note to clients.
The pension challenge, inherited through the $17 billion purchase of Imperical Chemical Industries Plc in 2008, has absorbed Nichols’ time in his final months in charge. While adding to expenses, the move is positive for the company in the longer term, Tom Muller, an analyst at Theodoor Gilissen Bankiers, said by phone.
“Thanks to this step, they can focus on their activities,” Muller said, adding that the increased financing expenses aren’t that high in comparison to annual earnings.
Akzo shares declined 0.9 percent to 57.27 euros as of 12:27 p.m. in the Dutch capital, valuing the company at 13.9 billion euros.
Further steps to tidy-up the pension situation are expected by the analysts, highlighting Chief Executive Officer Ton Buechner’s drive to tackle the historical weaknesses that have plagued Akzo’s balance sheet. Buechner last year sold the U.S. decorative paint division, including the Glidden brand, to PPG Industries Inc.