ICI Accepts Sweetened Offer From Akzo Nobel

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.

The agreement followed Akzo's latest proposal, made last week, which valued ICI at just over $16 billion. This is a slight increase over a $15.8 billion offer floated the previous week and a 12% improvement from one made in June.

Akzo's sweetened offer was buttressed by a back-to-back agreement with Henkel, the 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.

These National Starch businesses had sales of about $2.5 billion in 2006 and will increase Henkel's adhesives sales to nearly $10 billion, about half of its total sales. The German company says it expects cost savings of $325 million to $350 million from the acquisition.

ICI???s Dulux paint operations, meanwhile, will boost Akzo's coatings sales to about $13.5 billion per year, or between 10 and 15% of the global paints and coatings industry. Assuming it retains all the 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.

With the acquisition, Akzo Nobel Chief Executive Officer Hans Wijers said at a press conference, "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, however, complicates things, Wijers said.

Annual pretax cost savings related to the Dulux business will reach nearly $380 million, Wijers said, and he expects other cost synergies from combining the two firms.

The Dutch company is paying for ICI from the $15 billion proceeds of the sale of its Organon BioSciences division to Schering-Plough. That deal will close "come hell or high water" by the end of this year, Wijers said.

The sale of ICI will mark the end of a bellwether of British industry, a petrochemicals-based conglomerate formed 81 years ago through the merger of four British producers of alkali chemicals, explosives, and dyestuffs. In 1993, ICI spun off its life sciences businesses as Zeneca, and in 1997, it acquired Unilever's chemical operations. It subsequently divested its petrochemicals business and, in the past few years, has sold the oleochemicals and flavors and fragrance operations acquired in the Unilever deal.

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."