October 27, 2017 / 4:39 PM / 2 years ago

Exclusive - Akzo Nobel approaches Axalta about possible merger - sources

FRANKFURT/NEW YORK (Reuters) - Dutch paints and coatings giant Akzo Nobel NV (AKZO.AS) has approached U.S. rival Axalta Coating Systems Ltd (AXTA.N) to discuss a possible merger that would create a global coatings giant, according to sources familiar with the matter.

Empty Dulux paint cans wait to be filled inside AkzoNobel's new paint factory in Ashington, Britain September 12, 2017. REUTERS/Phil Noble

Akzo Nobel’s move indicates that its new CEO Thierry Vanlancker is continuing to look for big deals as a way to buttress the company, after it managed to fend off a takeover approach by PPG Industries (PPG.N) earlier this year.

Philadelphia-based Axalta is in the early stages of considering a deal with Akzo Nobel, and there is no certainty that the two companies will agree to a merger, one of the sources said on Friday.

The sources asked not to be identified because the negotiations are confidential. Akzo Nobel and Axalta did not respond to requests for comment.

Shares in Axalta soared nearly 22 percent on the news and were last up 18 percent at $33.27 in early afternoon trading, giving the company a market capitalisation of $8.1 billion (6.17 billion pounds). Akzo Nobel’s shares had finished flat in Amsterdam, valuing it at 19.5 billion euros.

Earlier this year, the Dutch maker of Dulux rejected a 26-billion euro acquisition offer from U.S. rival PPG. As an alternative transaction, Akzo Nobel has announced it plans to sell or spin off its specialty chemicals division, which represents about a third of sales and profits.

Such a divestiture will concentrate Akzo on coatings, and so a tie-up with Axalta, the No. 1 supplier to the North American heavy truck market, would round out its business to include vehicle coatings.

PPG CEO Michael McGarry said on the company’s third-quarter earnings call earlier this month that, when it came to Akzo Nobel, PPG had “moved on.” A PPG spokesman declined to comment on Friday on how the company will respond to Akzo Nobel’s merger discussions with Axalta.

A tie-up with Axalta, the former car paint unit of DuPont, is be the major first merger being pursued by Vanlancker, who took over as Akzo Nobel CEO when Ton Buechner resigned for health reasons in July.

Vanlancker has cut Buechner’s profit goals, made in the heat of the takeover battle, twice in the space of six weeks, blaming disruption caused by hurricane Harvey, rising raw materials costs and “headwinds” at its marine coatings business.

He has also focused on trying to cultivate Akzo Nobel’s investor base. Having won a court case in which activist investor Elliott Advisors sought but failed to get the removal of president Antony Burgmans, Akzo Nobel pledged to mend its relationship with shareholders.

Private equity firm Carlyle Group LP (CG.O), Axalta’s former owner, had considered selling the company to Akzo in 2014 before taking it public.

Additional reporting by Pamela Barbaglia in London and Arno Schuetze in Frankfurt; Editing by Nick Zieminski

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