Coatings business alert! There is a global technical shift in the offing as two of the industry's oldest and dominant players have agreed to join forces. Netherlands-based Akzo Nobel N.V. (the owner of Dulux paints) and US-based Axalta Coating Systems Ltd. have entered into a definitive agreement for an all-stock merger of equals, in a landmark trans-Atlantic deal. This combination is set to create a premier global powerhouse with an estimated enterprise value of ~$25 bn and combined market value close to $17 bn.

Here is a look at its deal structure.

• AkzoNobel shareholders are expected to own 55% of the new entity
  
• Axalta shareholders will hold the remaining 45%
  
• Additionally, AkzoNobel shareholders will also receive a special cash dividend of €2.5 billion prior to the closing.
  

The merger is aiming for $600 mn in run-rate synergies within three years. Finally, the deal is expected to close between late 2026 and early 2027. However, there is an important question for the market. Does this union finally create the undisputed leader capable of navigating a slowing global economy?

Why Are These Paint Giants Joining Forces?

This merger is a strategic necessity. It is born out of a challenging macroeconomic environment and a desire for market dominance. The coatings industry has been struggling with headwinds such as:

• Tariffs
  
• Volatile raw material costs
  
• A slowing global economy
  

This has dampened consumer spending. So, AkzoNobel and Axalta are essentially building a fortress by this merger.

Their portfolios complement each other in many ways.

• AkzoNobel is a giant in decorative paints and industrial coatings, with household names like Dulux and Sikkens
  
• Axalta is a global leader in the refinish and mobility segments. It specialises in high-performance coatings for vehicles and industrial applications
  
• The combined entity will boast a balanced portfolio that can cover everything from aerospace and marine coatings to the paint on your living room wall and the finish on your car This is indeed a merger of scope. With this, the companies can combine without the heavy debt burden that is usually associated with massive acquisitions. With a strategically forged plan, investors need to now look at who’s going to lead the new entity.

Who Holds the Brush in This New Entity?

This deal seems to have a clear governance structure that is planned to mitigate any leadership friction. The combined company will have a one-tier Board.

• Rakesh Sachdev will be the leader of the board. He is the current Chair of Axalta.
  
• Ben Noteboom, the current Chair of AkzoNobel’s Supervisory Board, will serve as Vice-Chair
  
• Operationally, Greg Poux-Guillaume, who is the current CEO of AkzoNobel will serve as the CEO of the new group
  
• Greg will be supported by Chris Villavarayan, the current CEO of Axalta, who will step into the role of Deputy CEO.
  

This strategy is designed to ensure that both sides have significant skin in the game and representation at the highest levels.

Interestingly, the new entity is set to have a unique geographical footprint.

• It will be organised under a Dutch holding company with tax residency in the Netherlands.
  
• Initially, the combined company will be dual-listed in Amsterdam and New York
  
• Then, it will move to a single NYSE listing and maintain dual headquarters in Amsterdam and Philadelphia.
  

This can be a strong signal that the new giant is chasing the higher valuation multiples, generally afforded to American industrial companies.

Smoothing Over the Industry Cracks

This deal is also a response to the intense pressure within the European industrial sector.

• Activist Investor Pressure - AkzoNobel has been under the radar of activist investor Cevian Capital. Cevian had built a 5% stake in the company earlier this year and has been vocal about the need for a strategy change.
  
• The Role of History - This is the second attempt to merge these two firms. A previous effort in 2017 had fallen apart because they could not agree on terms. The success of this second attempt is a sign of how much the landscape has changed.
  
• Strength by Joining forces - AkzoNobel and Axalta, by joining forces, are creating a giant with 173 manufacturing sites and 91 R&D facilities worldwide. This scale is their answer to the "industry cracks."
  

The long regulatory road to 2027 has begun now, but the destination is clear: a new global big player in the colour industry.

Source

Bloomberg
AkzoNobel Official
Reuters
WSJ