ICI Spurns A Bid From Akzo Nobel

AKZO NOBEL has disclosed that it made an informal $14.2 billion cash offer earlier this month for Imperial Chemical Industries. The British firm says it rejected the bid "on the grounds that it significantly undervalues ICI."

The Netherlands-based Akzo, which bought another big British firm, marine paint maker Courtaulds, in 1998, says ICI would "represent a highly attractive addition" to its coatings and chemicals businesses. But ICI, which makes Glidden and Dulux house paints, counters that it is confident in its own "strategy and strong growth prospects."

Analysts suspect the bidding may not be over, and some suggest companies such as Dow Chemical, DuPont, and BASF might enter the fray. Following news of Akzo's offer, shareholders bid up ICI's stock price more than 15%.

Despite pension liabilities exceeding $18 billion, ICI has become an attractive target since slimming down its portfolio and reducing its debt. During the past year-and-a half, it has sold its Quest flavors and fragrances unit to Givaudan and its oleochemicals operations to Croda International. Over the same period, the firm's share price has risen 85%.

Phillip G. Phillips, managing partner of Chemark Consulting Group, says paint is a mature business that is ripe for consolidation. The acquisition of ICI would boost Akzo's position as the leading paint maker globally. In North America, the acquisition would place Akzo in third place behind Sherwin-Williams and PPG Industries. ICI's National Starch & Chemical unit would also boost Akzo's position in the related markets of adhesives and sealants, Phillips notes.

Akzo, soon to be flush with cash when the $14.4 billion sale of its Organon health care business to Schering-Plough closes, may come back with another bid. "Akzo Nobel will continue to evaluate all strategic opportunities, including ICI," it says.

But Phillips says Akzo's offer for ICI was on the high side for a paint and adhesives business. He suggests that the Dutch company may instead turn its sights to other paint makers such as Valspar or PPG.