Akzo Nobel Ups Bid Again For ICI

A second increase in its offer to take over U.K. specialty chemical company ICI has brought Akzo Nobel close to winning its acquisition.

Akzo's latest proposal values ICI at just over $16 billion, up from the $15.8 billion offer last week and $14.2 billion in mid-June. The increase has been enough to convince ICI to begin serious negotiations, opening its accounts and records to Akzo and Akzo's bid partner, Henkel, for due diligence examination.

ICI issued a statement that its board "has agreed that Akzo can undertake certain limited due diligence, which ICI expects to be completed within a few days."

Industry observers expect Akzo to make a formal offer for ICI this week. Under guidelines of the U.K.'s Takeover Panel, the Dutch company must make a formal bid by Aug. 9, although it can arrange extensions if negotiations are under way.

Meanwhile, Henkel and Akzo have reached an agreement on the value of Henkel's share of the bid. The German company will acquire the adhesives and electronic materials businesses of ICI subsidiary National Starch & Chemical for roughly $5.5 billion in the back-to-back transaction. The deal is contingent upon Akzo's successful acquisition of ICI.

According to Henkel, the acquisition would strengthen its leading position in the global adhesives market, particularly in the industrial business. The National Starch businesses had sales of about $2.5 billion in 2006 and would increase Henkel's annual adhesives sales to nearly $10 billion, about half of the German company's total sales.

The National Starch businesses "offer high complementarity" with Henkel's adhesives businesses, Henkel says, with "exceptional geographical and technological as well as market segment complementarity." The German company says it expects synergies, primarily from cost savings, of $325 million to $350 million from the acquisition.

For Akzo, the main prize if the acquisition goes through will be ICI's Dulux paints and coatings division. Combined with its own coatings operations, ICI's paints will give Akzo a roughly 10% share of the global paints and coatings industry. It would undoubtedly have to sell off some coatings operations to satisfy antitrust objections in Europe, in particular, but the buy would still mean a significant enlargement of Akzo's product slate and market share. The combination of all of ICI's businesses would have given Akzo total sales in 2006 of just under $19.2 billion, a sizable jump from Akzo's actual chemical sales of $12.6 billion.