Akzo Nobel wins Courtaulds (1998)

...but they don't want the Fibres business.  The combined Akzo/Courtaulds fibres operations will be demerged, floated or just sold by the end of the decade.

Undervalued! The 450p/share offer is double the Courtaulds share price of a few months earlier.

The Tencel investment is seen as "one of the main reasons why Courtaulds hit hard times", but would "eventually make a strong contribution to profits".

Courtaulds' board has recommended shareholders accept Akzo Nobel's £1.83bn ($3bn) offer. Restructuring plans have been shelved and instead Courtaulds' chief executive, Gordon Campbell, is headed for a seat on the board of the enlarged company and a chief executive officer role when the combined fibres businesses are demerged.

There appears to be some disagreement over whether the 450p bid undervalues Courtaulds' assets. The acid test will be whether an alternative bidder emerges over the coming weeks. Cees van Lede, Akzo Nobel's chief executive officer, claims the offer is 'fair and more importantly certain value'.

The logic of the deal for both companies and their employees is compelling. The geographical and product portfolios have very little overlap. Redundancies are unlikely as is the possibility of production facility closures.

Cees van Lede claims the purchase of Courtaulds, 'the Rolls Royce of UK coatings and fibres', is a 'win-win deal', strengthening both the coatings and fibres businesses. It fits perfectly with Akzo Nobel's long-term strategic aims of being a world leader in coatings and eventually spinning off fibres as an independent business.

The combined coatings business now becomes a world leader. Combined 1997 coatings sales of Dfl11.5bn ($5.65bn) compare with Sherwin Williams at Dfl9.5bn and ICI at Dfl7bn.

While Akzo Nobel is big in decorative paints, car refinishes and wood, Courtaulds is a world leader in marine and yacht coatings, heavy-duty protective coatings and aerospace sealants.

If any anti-trust problems arise with the EU it is likely to be in the aerospace
coatings business where Courtaulds and Akzo/Dexter (the 60:40 joint venture with Dexter Corporation of the US) both have strong positions. Courtaulds' strength in the US and Asia is a big attraction to Akzo Nobel as customer globalisation is driving paint producers to follow suit.

The combined fibres business will rank in size with the world's top fibre players. Cash generative businesses - like industrial fibres, acrylics and acetate tow - will finance the development of the high growth businesses. Lyocell is included by Akzo in this area. The £300m already invested in development and production capacity is one of the main reasons why Courtaulds hit hard times. Van Lede said Akzo Nobel's experience with the development of aramid allowed the group to be confident that lyocell, marketed by Courtaulds as Tencel, would eventually make a strong contribution to profits.

The spin-off of the fibres business should be complete by the end of the decade. Demerger to existing Akzo shareholders is one option, but an outright purchase or an initial public offering, IPO, has not been ruled out.

The joint venture in industrial fibres between Akzo Nobel and Sabanci, the Turkish fibre producer (ECN 13 October 1997), is now unlikely to go ahead, says Van Lede. To date, little progress has been made in the joint venture talks and industrial fibres is now likely to be included in the new fibres business. There would, said Van Lede, be no financial penalty if the talks with Sabanci are terminated.

27 April 1998 [Source: ICB]