Issue Date: March 5, 2007
A Slimmer Akzo
BY THE END of the month, a new Akzo Nobel will emerge from its chrysalis. No longer a hybrid company making chemicals, coatings, and drugs, Akzo Nobel will have left the pharmaceuticals business by launching Organon Biosciences as a stand-alone company on the Amsterdam Stock Exchange.
The split is the culmination of an extensive portfolio restructuring conducted over the past two years. Once described as a ragbag of businesses, Akzo Nobel now will have a sleek new shape.
To emphasize its new identity, Akzo Nobel is pulling up stakes and moving its corporate headquarters from its historic site in Arnhem, at the eastern edge of the Netherlands, to Amsterdam.
"The logic in being in Arnhem has disappeared," observes Hans Wijers, chairman of the company's executive board. Akzo originally settled in Arnhem for access to clean water from the nearby Rhine River to produce fibers. The company still has a major manufacturing presence in Arnhem and the Dutch city of Amersfoort, but it now has sizable assets outside the Netherlands.
Moreover, Wijers says, only 5,000 of the firm's nearly 62,000 employees are in the Netherlands. For the rest, traveling to the Arnhem headquarters is inconvenient, particularly when compared with the central location of Amsterdam.
Relocating headquarters to send a message about change is not new, of course. In 2000, Degussa moved to a new headquarters following the merger of three German firms: Frankfurt-based Degussa, Marl-based Hüls, and Trostberg-based SKW Trostberg. The enlarged company chose the neutral site of Cologne to forge a new presence.
Akzo Nobel's new headquarters, Wijers says, will feature flexible work space "allowing our people to come from all over to the center, allowing more interaction in teams." The move will also enable the company to "distance itself from its past," he adds.
At the company's annual results press conference in Amsterdam last month, Wijers said the stock market launch of Organon Biosciences was "imminent" and that he would be surprised if it were not accomplished by the end of March.
Last week, in fact, the company confirmed that the process for the initial public offering (IPO) of Organon on the Dutch stock exchange will begin during the first two weeks of March. Akzo Nobel intends to sell 20-30% of Organon's shares now and the remainder over the next three years.
THE SPLITTING of operations has generally been welcomed by the financial community. As analysts at Merrill Lynch noted in January, "We continue to believe there is value to unlock at Akzo, with the catalyst being the likely separation of Organon in early 2007."
Some analysts have predicted that Organon will be sold to a competitor or a private equity firm for as much as $10 billion, as opposed to $9 billion expected from a stock market launch. Either sum would give Akzo Nobel a sizable war chest for making significant acquisitions; for the past several years, executives have said they were interested only in medium-sized deals up to several hundred million dollars.
At the press conference, Wijers noted that his team has "a fiduciary duty" to consider any purchase offer that might emerge at the last minute. But he insisted that an IPO is the best route for Organon and its employees because it allows the company to emerge as an independent force.
Either way, Organon's departure will take out a little more than a quarter of Akzo Nobel, leaving a coatings and chemicals company that would have had sales last year of $12.6 billion. Akzo will be one of the largest specialty chemical companies in the world: It ranked number 18 in the last C&EN survey of the global top 50 chemical companies (C&EN, July 24, 2006, page 13). C&EN's ranking excludes pharmaceutical sales.
The company has been refining the focus of its coatings operations in recent years. In January, for example, Akzo merged its international and European decorative coatings businesses into one group to concentrate on decorative paints and coatings worldwide.
And its technology in the coatings field is not standing still. Last month, Akzo launched a new marine coating, Intersleek 900, that uses silicone-based technology to control growth of algae and invertebrates on ship hulls. Rather than the traditional toxic chemicals that leach out to kill hull-hugging organisms, the coating relies on the combination of a slippery surface and speedy sailing through water to deter them. "The new product will make older, slower ships go faster," Wijers enthuses.
It is in chemicals, though, that Akzo Nobel's refocusing efforts have been most concentrated.
The project started about two years ago, says Leif Darner, head of the chemicals businesses. "The chemicals restructuring was a very sharp, focused, two-year program," he recalls. "This was my task when I was appointed to the board. In late 2004, we began to prepare, think, and plan."
There were no preconceived positions, which meant the company could take a look at itself from the ground up, Darner says. "Why is Akzo Nobel in chemicals? We had to have some sense of why we were in a business—or should we be in chemicals at all, and if so, which ones? It was a complete strategic review."
Any chemical business that made the grade had to have at least the potential to perform well, Darner says. It had to have a competitive advantage within its marketplace, it had to be of a significant size or scale, and it had to have potential to grow.
Soon into the process, Darner's team had identified 14 businesses with combined 2004 sales of roughly $875 million that didn't make the grade. For example, ink and adhesives resins were sold to Hexion Specialty Chemicals, an Australian solar salt business went to Mitsui, the MPP water purification line was divested to Veolia Water Solutions, and Akzo's 50% stake in the Flexsys rubber chemicals business went to joint-venture partner Solutia.
Surviving the purge were five business units: functional chemicals, surfactants, chlorine and derivatives, pulp and paper, and polymer chemicals. "We are very strong in all these areas," Darner says.
IN CHLORINE and derivatives, he concedes, "we have a regional position." The business is rooted in the Netherlands, with operations in Germany and Sweden. Akzo Nobel recently built a chlorine plant in Delfzijl, the Netherlands, that has enabled pipeline transport of chlorine and eliminated shipment by truck or rail. In this area, Darner says, the company will grow as its customers grow.
In its four more international businesses, however, Akzo plans to expand while increasing its specialization. For example, Darner points out, in surfactants "we are moving away from the bulk 'soaper' surfactants to where we have specific areas of technology and strong global positions."
The focus on increased specialization, the company says, has helped it improve its overall return on investment from 14-15% historically to 16% more recently. Now, Darner adds, it is approaching 17%.
But he acknowledges that specialization implies a concomitant reliance on innovation. "Innovation is increasingly important, not just making the same stuff more efficiently," he says.
According to Darner, the company is strengthening an internal innovation unit that runs across all of its chemical and coatings businesses. The unit assesses new ideas, sets priorities, and ensures that top-priority projects are funded. The unit should find its mandate easier to achieve under the new leaner structure. "We are stepping up our technological efforts because there are more synergies," he says. "We are not so fragmented."
Moreover, the company is in the process of appointing a new chief technology officer who will oversee technology platforms that can be shared across the company's units. Examples include particle science, which Darner sees as common across all the company's businesses, and surface science, important for the firm's emulsions and paper chemicals, among other products.
According to Darner, the pharma split has been meticulously planned. "It makes so much sense to form two new companies," he says. "There is more clarity, and people can identify with this. And the pharma people are very excited about the split, too."
Wijers and Darner are aware that split-ups of diversified chemical and pharmaceutical companies have not always gone well, but they say Akzo is different. "You cannot really compare other separations with this one," says Wijers, who will be chairman of the supervisory board of Organon. "In terms of size, we are splitting in two, but both units are very strong, with strong portfolios. They will both be leaders in their industry."
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