Like White Paint, Akzo Nobel CEO Is Sticking to ‘Boring’ Basics

  • Buechner says paint, chemicals company wants to be predictable
  • Akzo will pursue bolt-on acquisitions over big deals: CEO

By his own account, the chief executive of Akzo Nobel NV has put the Dutch paint maker on a more humdrum route to growth.

Ton Buechner is eschewing the splashy mega-deals that are transforming U.S. competitors such as Sherwin-Williams Co. and Dow Chemical Co. in favor of discipline and smaller operational changes.

“I told people this is going to look boring from the outside, but if we don’t do it, it’s really not going to be good for the company,” he said in an interview at the new headquarters in Amsterdam. “We’re not focusing on the big ones, the focus is on bolt-on acquisitions and organic growth.”

Ton Buechner during an interview at the company’s new headquarters.

Photographer: Jasper Juinen/Bloomberg

Buechner’s detail-oriented methods include monitoring cost savings on a live
computer feed and inspiring thousands of employee projects to improve
efficiency. They are emblematic of the transformation that Akzo Nobel has
enjoyed under his nearly 5-year reign, when profitability improved along
with the company’s ability to reach financial targets and pay a higher
dividend.

Investors have taken notice, sending shares in Europe’s largest paint company about 50 percent higher since April, 2012. They ended nearly unchanged at 60.38 euros on Tuesday, giving a market capitalization of 15 billion euros ($16 billion).

“One of the things that we really wanted to do, is that we wanted to be predictable,” Buechner said, moving “from a company that had some severe challenges to a company that is starting to acquire.”

Akzo is expected to report on Feb. 15 a third straight year of annual profit growth partly due to restructuring and greater efficiency, with analysts predicting a 3 percent increase on average to 2.14 billion euros, according to a survey by Bloomberg.

Bet on Basics

For investors looking further ahead, Buechner, 51, said Akzo’s 2017 capital markets day will mostly be about internal growth, efficiency measures, a raft of new products in areas such as water-based paint, and the odd bolt-on acquisition.

To achieve this, the CEO is betting on the basics: generating cash for dividends, achieving targets and outperforming wider markets without splurging big on M&A. Faced with downbeat oil-and-gas and marine-coatings markets and a slowdown in Latin America, he said his strategy is to continually generate efficiency and make sure it sticks. For that purpose, executives from General Electric Co. were hired to help push through the changes.

“We do all this quietly and that doesn’t necessarily bring admiration,” Buechner said. “Steadiness used to be highly appreciated.”

Art Collection

Akzo’s new building in the business district of Amsterdam showcases how the company has consolidated operations including human resources into hubs, allowing peripheral sites to be closed. With half the staff usually traveling, there are 450 workplaces for 700 people. For the maker of Dulux paint colors like “pink pandora” and “lemon delicious,” the walls are mostly clinical white, with a riot of color on the floors and in the company’s vast contemporary art collection.

Akzo Nobel’s headquarter offices in Amsterdam.

Photographer: Jasper Juinen/Bloomberg

The major restructuring moves that were overseen by the executive at the start of his mandate have now been replaced by 10,000 smaller projects that all workers play a part in, and eventually show up on Buechner’s computer tracking tool. They have the potential to generate 100 million euros to 200 million euros in savings a year.

Akzo is on the sidelines of major deals in the paint and chemicals industries including Dow Chemical’s $65 billion planned merger with DuPont Co., Sherwin-Williams Co.’s $11 billion deal to buy rival paintmaker Valspar Corp. and Evonik Industries AG’s $3.8 billion purchase of a coatings additives business from Air Products & Chemicals Inc.

In the face of pressure to do deals, Buechner said he prefers to stay disciplined.

The Dutch manufacturer is also having to defend market share at home against a growing list of overseas rivals such as Japan’s Kansai Paint Co., Valspar and PPG Industries Inc. So far the threat remains muted, he said.

Consolidation

The European coatings market remains ripe for consolidation and Akzo will be participating, he said. Last month, in its first deal in years, Akzo bought a coatings unit from BASF SE. The last big wave of deals was when PPG acquired Dutch paint maker SigmaKalon for about $3 billion in 2008, just after Akzo purchased Imperial Chemical Industries for $17 billion.

“In Europe, there have not been that many big acquisitions,” Buechner said. “It’s an industry that’s asking for consolidation but it’s not yet happening. At the moment, you see more willing buyers than sellers.”

While ruling out a transaction the size of Sherwin’s takeover of Valspar, Akzo’s bolt-on deals could still entail spending 1 billion euros or even “a bit more,” he said, adding that as the company ends its first year paying dividends from cash flow, it has the financial capacity to do several smaller deals.

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