The recent wave of takeovers in the chemical industry seems to be moving in one direction: from east to west. Chinese firms are moving in on Europe, while European chemical companies – especially the German leaders Bayer, BASF, Evonik and Lanxess – are making acquisitions in North America.
However, the offer of the US paint company PPG for its Dutch competitor AkzoNobel is evidence that the direction can change.
It remains to be seen whether PPG can overcome the resistance being put up by Akzo’s management. But what is already clear is that the attack by PPG and the activist investor Elliott has shaken things up at the Dutch firm. Chief executive Ton Büchner has spun-off special chemicals and is issuing a €1 billion special dividend in a bid to shake off the pressure from America.
No chemical company can permit itself a moment of rest in the ongoing structural transformation in the industry.
Ever since its takeover of ICI almost 10 years ago, Akzo has grown only slightly and only scarcely changed its structure. Also, management is maintaining its longstanding objection to calls from analysts to separate the paint business from the rest of its chemical operations – something that has turned it into a takeover target. The firm has still been able to constantly improve its margins, but in this regard it hasn’t done as well as its American competition. In terms of operating profits, for example, Akzo is around three points behind rivals such as PPG and Sherwin Williams.
In the last five years, PPG generated almost four times as much free cash flow as the somewhat larger Akzo. What is more, takeovers are being made easier for US companies by the strong dollar and the fact that chemical companies tend to have a higher value on the American stock market.
Many representatives of the European chemical industry, including firms such as DSM, Solvay, Arkema and Lanxess, have been more vigorous in optimizing structures and efficiency in recent years. They were more active in consolidation and can justifiably consider themselves to be in a stronger position.
Nevertheless, the struggle for Akzo should be interpreted as a warning signal. No chemical company can permit itself a moment of rest in the ongoing structural transformation in the industry. Because rivals are too aggressive and many investors are too greedy.
Siegfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent. To contact the author: email@example.com