AkzoNobel NV (AKZOY) has called off its planned merger with Axalta Coating Systems Ltd (AXTA) - Get Free Report after that company confirmed mid reports that Japan's Nippon Paint Holdings (NPCPF) has swooped in with a rival bid for the Warren Buffett-backed group.
Nippon Paint shares fell sharply in Tokyo Wednesday before officials suspended trading after a Reuters reported linked the country's biggest paintmaker to a potential $8.2 billion play for Axalta, which had confirmed merger talks with the beleaguered AkzoNobel only three weeks ago.
"Axalta today confirmed that it is engaged in discussions with Nippon Paint regarding a potential acquisition of Axalta," the Philadelphia, Pa.-based company said "Axalta will pursue such a transaction only if its Board of Directors determines that it is in the best interest of Axalta to do so."
"There can be no assurances that a definitive agreement between the parties will be reached or on what term," the company added.
Axalta shares surged in pre-market trading in New York Wednesday and were indicated 6.3% higher, at a 52-week high of $36.00 each, at the opening bell.
In a statement published late Tuesday, Akzo said the collapse of the talks would not affect plans to split its business -- a strategy hatched to combat pressure from activist investor Elliott Management, which was pushing for a $30 billion tie-up with PPG Industries (PPG) - Get Free Report -- or alter the group's 2020 financial targets.
"I am confident that our strategy offers significant value for shareholders and other stakeholders in the short, medium and long term," said CEO Thierry Vanlancker. "We remain focused on our strategic options to continue to develop our business and improve profitability in the future."
The Axalta failure marks the second attempt to merge Akzo with a rival and satisfy investor concerns that its growth strategy hasn't been bold enough to deliver effective shareholder returns.
Akzo acknowledged a portion of that criticism when it fended-off the unsolicited bid from PPG by promising investors it would carve out its speciality chemcials business -- which is plans to complete in April -- and pay a special €1 billion dividend to shareholders next month. Investors will vote on both proposals on Nov. 30.
The collapse of Axala talks, however, could reignite activist pressure and make the Amsterdam-based group vulnerable to another takeover attempt from Pittsburgh-based PPG, which has a market cap of $30 billion - around $8 billion higher than that of Azko Nobel.
Akzo issued its second profit warning in as many months in mid-October after underlying earnings fell 13% to €383 million ($451 million) for the three months ending in September due "adverse foreign exchange, ongoing industry specific headwinds and supply chain disruptions". It also suffered from a temporary disruption to their manufacturing and supply chain, reporting a €25 million impact on earnings due to Hurricane Harvey and "other events". The group now expects Ebit for 2017 to be in line with 2016.
"We have also initiated phase one of our transformation plan to create a fit for purpose Paints and Coatings organization which will deliver €110 million annual savings in 2018 contributing towards our 2020 financial guidance," Vanlancker said.
Akzo shares were marked 1.58% higher in the opening minutes of trading in Amsterdam and changing hands at €79.17 each, extending their three month gain past 2.2%.
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