Akzo Nobel bid wins ICI

AKZO NOBEL HAS made an official offer to acquire the U.K. specialty chemical company ICI. After spurning earlier overtures from the Dutch firm, ICI's board of directors has agreed to the deal and recommended that shareholders accept it.

ICI is the last major British-owned chemical company and at one time was the bellwether of British industry. With the agreement, announced at a press conference on Aug. 13, ICI will be folded into its Netherlands-based rival.

There is a poetic nature to the deal, as family ties rebind. ICI was formed 81 years ago through the merger of four British producers of alkali chemicals, explosives, and dyestuffs. One of them was Nobel Industries, the explosives company founded by Alfred Nobel in 1871. And the "Nobel" of Akzo Nobel is a legacy of various chemical operations founded by the Swedish inventor in the 1880s and acquired by Akzo in 1994.

Akzo's official proposal values ICI at just over $16 billion. That was a slight increase over a $15.8 billion offer floated the previous week and a 12% improvement from one made in June.

Akzo was able to make its bid because of a back-to-back agreement with Henkel, a German detergents and adhesives producer. Henkel will pay Akzo roughly $5.5 billion to acquire the adhesives and electronic materials businesses of ICI subsidiary National Starch & Chemical.

Those businesses had sales of about $2.5 billion in 2006 and will increase Henkel's adhesives sales to nearly $10 billion, about half of the firm's total sales.

Meanwhile, the paint operations that Akzo coveted will boost its coatings sales to about $13.5 billion per year, or between 10 and 15% of the global paint and coatings industry. Assuming it retains all the remaining ICI businesses, Akzo will log annual sales of nearly $20 billion, a sizable jump from its 2006 paint and chemical sales of $12.6 billion.

Analysts speculate, however, that Akzo may divest the remaining National Starch businesses, including specialty polymers and starches. And the company almost certainly will try to sell off ICI's remaining commodity chemicals and regional businesses, which are operations that ICI has sought to unload for several years.

Akzo Nobel CEO Hans Wijers said annual pretax cost savings from combining the Akzo and ICI paint businesses will reach nearly $380 million. His company is paying for ICI from the $15 billion proceeds of the sale of its Organon BioSciences division to Schering-Plough, a deal expected to close by the end of this year.

With the ICI acquisition, Wijers said, "We will build one new company, and we will have to think very carefully about our branding." When Akzo merged with Nobel in 1994, the two names were simply combined. A third name would complicate things, he acknowledged.

ICI CEO John McAdam conceded at the press conference that "it's a day of mixed feelings about seeing ICI cease to be an independent company. However, Akzo Nobel has today made a compelling offer which delivers full value for ICI."

McAdam and his team have spent the past two years restructuring ICI, which had floundered after earlier strategies that seemed sound in theory went awry in practice.

In 1993, ICI spun off its life sciences businesses as Zeneca, and in 1997, it acquired Unilever's chemical operations in a bid to become a noncyclical specialty chemical producer. But the resulting massive debt forced the untimely divestiture of the petrochemicals businesses and, over the past few years, the oleochemicals and flavors and fragrance operations acquired from Unilever.