AkzoNobel to separate chemicals unit

Dutch chemicals firm AkzoNobel, which has been the subject of a EUR24.6 billion takeover by US rival PPG Industries, has outlined a new strategy to separate its speciality chemicals business into a new unit that will be divested within 12 months, either through a sale or a listing. In its recent earnings release for the first quarter, revenue for speciality chemicals was up by 7%. The unit, which accounts for about a third of sales and profits of the company, has been valued around EUR8 billion based on its 2016 operating profit of EUR629 million by analysts.

The firm, which has rejected two takeover proposals from PPG despite strong encouragement from many of its shareholders to engage in merger talks, says the creation of two focused, high-performing businesses, Specialty Chemicals and Paints and Coatings, will “accelerate growth and value creation and lead to a step change in value creation for shareholders and all stakeholders.”

It expects to hand out EUR1 billion to shareholders, via a special dividend in November 2017, which is combined with a 50% increase to the regular dividend. “The logical next phase of creating two separate companies builds on the strong financial and operational foundation developed in recent years. It will generate superior, faster and more certain value creation than the alternatives and with substantially fewer risks, uncertainties and social costs,” said the company.

The separation of Specialty Chemicals to take place within 12 months, will involve a dual-track process with active consideration of a separate listed entity or sale. It expects EUR150 million annual savings resulting from ongoing continuous improvement programs in Paints and Coatings, additional EUR50 million expected cost savings related to the separation of Specialty Chemicals and will also pump an investment of EUR1 billion into R&D by 2020 to maintain focus on innovation and new product development. Furthermore, it says that with its continued commitment to sustainability, it will use 100% renewable energy and be carbon neutral by 2050.

With the restructuring, AkzoNobel expects to improve its 2017 EBIT (earnings) by EUR100 million over 2016, “due to significant growth momentum across all Business Areas”.

Ton Büchner, CEO of AkzoNobel, said: "The industry-leading performance and outlook of our Specialty Chemicals business gives us the confidence to return proceeds to shareholders in advance of the separation. In addition, we see extensive growth momentum in our Paints and Coatings business, which we expect to keep growing faster than market rates, allowing us to improve our long-term financial guidance.”

He also said the strategy to separate the businesses “will create substantial value for shareholders with significant less risks and uncertainties compared to alternatives.”

AkzoNobel has said that the proposed merger bid by PPG does not fully address concerns of other stakeholders, including its employees.