AkzoNobel Outlines Forward Strategy
AkzoNobel said it will press ahead with plans to spin off its Specialty Chemicals segment as an alternative to a merger with US rival PPG, which is pursuing a takeover of the Dutch coatings manufacturer. In separate presentations to investors and journalists in London on Apr. 19, CEO Ton Büchner said this will mean creation of “two focused, high-performing businesses with sustainable growth plans.”
The company has set a12 month timetable for realizing the plans. Although some of the proceeds from a potential sale of the specialties arm could go to fund acquisitions, the “vast majority” would be returned to shareholders, the CEO said.
In Büchner’s words, “the industry-leading performance and outlook of our Specialty Chemicals business gives us confidence to return proceeds to shareholders in advance of the separation. In addition, he said management sees “extensive growth momentum” in the Paints and Coatings business, which it expects to continue growing faster than market rates and allowing it to improve its long-term financial guidance.
"Now is the right time to create two focused, high-performing businesses, Büchner asserted, while tossing hints in the direction of shareholders disgruntled by AkzoNobel’s refusal to engage wit PPG: “This strategy will create substantial value for shareholders with significant less risks and uncertainties compared to alternative.”
Following the separation, the Dutch coatings producer’s leadership believes it will be able to build on the “strong financial and operational foundation developed in recent years” as well as generating “superior, faster and more certain value creation than the alternatives and with substantially fewer risks, uncertainties and social costs.”
Painting an attractive picture for shareholders, the AkzoNobel chief announced that for 2017 the company intends to return €1.6 billion to shareholders in the form of a special dividend of €1 billion, combined with a 50% increase in the regular dividend share to €2.50 per share. In new financial guidance, said he expects 2017 EBIT to be around €100 million ahead of 2016, reflecting “significant growth momentum” across all business areas.
Looking at prospects for the paints and coatings and specialty chemicals segments separately up to 2020, Büchner said coatings can expect return on sales (ROS) of 15% and a return on investment (ROI) of more than 25%. For specialties he forecast a ROS of 16 and a ROI upwards of 20%. Going forward, management has calculated €150 million annual savings resulting from ongoing continuous improvement programs in the coatings business an additional €50 million expected cost savings related to the separation of the chemicals unit.
Commenting on the Akzo presentation, activist hedge fund Elliott Advisors said its strategy plan was "incomplete," due to its lack of engagement with PPG. The US coatings manufacturer itself dismissed its Dutch rival’s proposal for increasing the dividend, saying its own nearly €90 per share takeover offer would be better for the company’s shareholders, employees and other stakeholders as it represents an "immediate cash payout far in excess of the special dividend."
While Büchner declined to speculate on potential job losses in a spin-off of the Specialty Chemicals business, employees – who up to now have sided with management against a PPG takeover as a means of safeguarding jobs – for the first time suggested they would entertain the idea of meeting with the US company. "What happened today was a game changer," said Erik de Vries of the Dutch Federation of Trade Unions, FNV. "If PPG were to approach us to discuss this we would consider it."