Akzo Chief Seeks to Keep Company Intact, Bucking Breakup Trend

Akzo Nobel NV Chief Executive Officer Ton Buechner, 2 1/2 years into the role, said his vision remains keeping the paint and chemical group intact, even as competitors from DuPont Co. and PPG Industries split.

Buechner, who marked the start of his term with the $1 billion sale of a U.S. decorative paint unit to PPG, said disposals will get smaller in value from hereon, rather than larger. Acquisitions will be kept to a couple of hundred million euros at a time, he added in an interview, far removed from the $17 billion purchase of Imperial Chemical Industries that laid the foundations for today’s diversified Dutch group.

Activist shareholders entering the chemical industry are spurring chief executives to rethink company structures in place as long as a century, and their influence has reached Akzo’s doorstep. Dow Chemical Co. to Akzo’s fellow Dutch chemicalmaker Royal DSM NV are being lobbied for change. Analysts including Berenberg’s Jaideep Pandya have highlighted the merits of Akzo selling chemical units to focus on paint.

“We believe that the maximum value generation today is not in splitting the portfolio but in improving the returns, and that’s why we’re focusing on that piece,” Buechner said in the interview, adding that investors shouldn’t expect major disposals.

Disposal Pressure

Activist investor Nelson Peltz claims his plans for a DuPont breakup would double its share price in three years. Upon taking a stake in DSM, Third Point LLC says it’s confident the company can “unlock shareholder value via portfolio streamlining.” PPG sold its commodity chemicals business to Georgia Gulf and Dow’s chlorine business is among those on the block, under pressure from Third Point.

Akzo, which also makes caustic soda, chlorine and poly vinyl chloride, has so far avoided such outside influence. Buechner’s focus since his arrival in 2012 has been on bringing profitability in line with peers such as PPG by pushing efficiency and selling smaller, less-profitable businesses. It sold building adhesives to Sika AG for $348 million in 2013 and this year announced the sale of its paper-chemicals unit to Kemira Oyj for $210 million.

“They’re getting smaller as we go,” Buechner said, regarding divestments.“Don’t expect significant additional ones.”

What’s Next?

Akzo is nearing the end of major disposals, yet Buechner says he’s loathe to begin talking about the next phase lest it distract employees from the task in hand. For now, all focus is on improving returns and cash flow. The company is targeting a 9 percent return on sales, 14 percent return on invested capital and a net debt to earnings ratio lower than 2 for 2015.

“We’re running organic growth, we’re running bolt-on acquisitions and we drive the business to the profitability of our peers, that’s the focus now,” Buechner said. Multi-billion dollar deals aren’t part of the picture, he added.

“We continuously think about next steps, but we are 18 months into a three-year program and as a result we want to make sure internally and externally people continue to be focused on the things that we’re doing.”

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