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AkzoNobel sees strong buyer interest in specialty chemicals businessqrcode

Jun. 30, 2017

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Jun. 30, 2017

Nouryon
Netherlands  Netherlands
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Netherlands-based AkzoNobel is seeing strong interest in its specialty chemicals business from both strategic players and private equity firms, although it has yet to officially put the asset on the market.

“We are working on the preparation for the carve-out, which will probably have the official information memorandum by the end of the summer. So while there is no official approach, there is clearly a lot of interest from both strategics and private equity indicating they want to be part of the process,” said Thierry Vanlacker, head of AkzoNobel’s specialty chemicals business.

AkzoNobel is engaging in a dual track for the separation of its specialty chemicals business from its core paints and coatings franchise – a sale process along with an initial public offering (IPO) or spinoff. The company announced details of the planned separation in April 2017 after an unsolicited takeover approach by US-based coatings company PPG Industries in March. PPG withdrew its offer in early June after multiple approaches were rebuffed, and AkzoNobel is under pressure to enhance value through its separation plan.

In 2016, AkzoNobel’s specialty chemicals business had sales of €4.8bn, earnings before interest, tax, depreciation and amortisation (EBITDA) of €953m (about 20% EBITDA margin). Of its sales, 43% were in “mature Europe”, 17% in North America and 10% in Latin America.

Its five business segments include surface chemistry, pulp and performance chemicals, polymer chemistry, industrial chemicals, and ethylene and sulphur derivatives. Major product areas include surfactants, ethylene oxide (EO), polymer and rubber additives, chlorine and bleaching chemicals.

“Each of the five business units are about €1bn in size with more or less the same margins ranging from 18-22%. They are performing equally well and 80% of the businesses are either No 1 or No 2 [in global market share],” said Vanlacker.

Within the sale option, AkzoNobel would clearly prefer a sale of the entire business versus piecemeal.

“In April we said we wanted the process to take about a year, and carving out individual pieces would likely complicate and prolong the process,” said Vanlacker.

The executive sees “no bad scenarios” in the dual process.

TAKING SPEC CHEMS TO NEXT LEVEL
“Specialty chemicals is a strong performing business that we could take to a different level – there is a lot of upward momentum and our people are excited and energised,” said Vanlacker.

Capital spending (CAPEX) will be spread across all businesses, with a focus on developing geographic regions such as China, India and Latin America, but also in North America and Europe, he noted.

“We have an enormous amount of long-term customers that frankly are asking for more product,” said Vanlacker.

Some growth areas include pulp chemicals for cardboard and tissue, and high-purity industrial salts as a safe way of shipping chlorine to customers, he noted.

Recent investments have run the gamut across its diverse specialties businesses. On 2 June, AkzoNobel announced a €10m investment to expand its chelated micronutrients capacity in Kvarntorp, Sweden for agricultural soil enhancement by 2018.

In May 2017, the company completed an expansion of peroxyesters (organic peroxides) capacity at its Los Reyes, Mexico facility, raising North America capacity by 40%. These are used in the manufacturing process for polymers ranging from polyvinyl chloride (PVC), low density polyethylene (LDPE), acrylics and styrenics.

Also in May 2017, AkzoNobel announced a joint venture in Gujurat, India with Atul for the production of monochloroacetic acid (MCA) by 2019. The MCA will be used in Atul’s herbicides. MCA is also used as a thickening agent for the food, oil, mining, personal care and detergent sectors.

AkzoNobel is targeting an incremental €250m in annual EBITDA by 2020 within its base line capital plan, which includes a number of debottlenecking opportunities across its businesses.

It has also identified €100m in additional annual CAPEX from 2018-2022 that would lead to another €200m in annual EBITDA by 2022.

Capital spending is fundamentally different in the chemicals business versus coatings, making a good case for separation of the businesses, Vanlacker noted.

“Chemicals takes bigger steps and has longer cycles than coatings, which spends less capital and takes smaller steps for expansion,” he said.

AkzoNobel expects to make a decision on the nature of the separation of its specialty chemicals business by early Q4 2017, said Vanlacker.

Source: ICIS

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