AkzoNobel says it will divest its chemicals business within the next 12 months. The move will return more money to shareholders than would accepting an unwanted takeover offer from PPG Industries, AkzoNobel’s CEO Ton Büchner told analysts at a London briefing earlier today.
AkzoNobel says it will either float shares of its chemicals business on the stock market or sell the business as a whole to another company. Analysts estimate that it will fetch between $8 billion and $12 billion.
The divestment will create a chemicals business with annual sales of $5.0 billion, pretax profits of $1.0 billion, and about 9,000 employees. The business has five key units: surfactants, ethylene oxide and derivatives, polymer chemicals, chlorine-based chemicals, and bleaching chemicals.
The sale will leave AkzoNobel as a paints and coatings company with annual sales of $10.0 billion, pretax profits of $1.2 billion, and about 37,000 employees.
A sale or share flotation will ensure superior value for shareholders and lower risks such as competition issues than if the company accepted PPG’s takeover offer, Büchner said. PPG has offered to buy AkzoNobel for more than $26 billion.
AkzoNobel’s new plan was met with a blunt response from Wiktor Sliwinski, a portfolio manager for Elliott Advisors, a hedge fund management company that owns shares in AkzoNobel and has been pushing for the deal. AkzoNobel failed to provide an objective and fair comparison of the chemicals divestment plan with PPG’s proposed acquisition, Sliwinski said.
The analyst meeting came two days after PPG CEO Michael H. McGarry published an open letter to AkzoNobel’s shareholders asserting that his offer to buy the Dutch firm “is the compelling opportunity.” In the letter, McGarry claimed that only since PPG’s approach has AkzoNobel developed a new strategic plan.
Contrastingly, Büchner said he has been planning to divide AkzoNobel for the past few years. Doing it now is appropriate, he added, because pension obligations were recently “de-risked” and both parts of the firm are healthy.
He predicted that the paints and coatings business will increase its pretax profit margin from 10.6% today to about 15% in 2020. The chemicals business margin should rise from 11.5% today to about 16% in 2020.
Under AkzoNobel’s divestment plan, shareholders will receive a $1.6 billion boost to dividends this year, plus a promise to maintain higher future dividends. The vast majority of the proceeds from the sale of the chemicals business will be returned to shareholders, Büchner said.
Continuous improvements, including the standardization and automation of processes, mean that AkzoNobel will cut operating costs by about $150 million annually in the future. An additional $50 million in savings will result from the sale of the chemicals business, Büchner said.
Post-divestment, AkzoNobel will be in a position to step up its coatings-related R&D, according to Büchner. The firm plans to invest more than $1 billion in R&D by 2020, he said.