Dutch chemicals group Akzo Nobel has agreed a deal to buy Britain's ICI for 8 billion pounds ($16.2 billion) to boost its position as the world's biggest industrial coatings maker.
However, Akzo still has to secure shareholder support for the deal and faces opposition from at least one major investor, U.S. fund TPG-Axon, a source close to the fund said.
"They're spending all their cash at the top of the cycle...and I don't think now is the time to be buying a business with exposure to the U.S. housing market," the source told Reuters, adding TPG-Axon owns about 3.5% of Akzo.
Akzo, whose coatings are used on Airbus's A380 superjumbo, said on Monday it would pay 670 pence a share in cash for Imperial Chemical Industries (ICI), Britain's biggest chemicals company, which makes Dulux paints. That is 22 % above ICI's closing share price on June 15, the day before it announced a bid approach from Akzo.
At 1035 GMT, ICI shares were up 1.7% at 635 pence, around 5 % below the offer price and reflecting some doubts whether Akzo shareholders will back the deal.
Akzo shares were up 1.3% at 57.43 euros, as it sought to sweeten the deal for shareholders by saying it could return up to 3 billion euros to them from next year, on top of anexisting cash return of 1.6 billion euros.
In a side deal, German consumer products group Henkel agreed to buy ICI's adhesives and electronic materials businesses for 2.7 billion pounds, conditional on Akzo buying ICI.
Buying ICI would strengthen Akzo's leading position in the world's $85 billion-a-year coatings industry, giving it a market share of about 15% and increasing its exposure in North America and emerging markets, as well as in decorative coatings.
Annual revenue for the combined group will be over 15 billion euros, Akzo Chief Executive Hans Wijers told reporters.
"There is topline growth and the transaction as a whole is accretive to earnings," Wijers said, adding that he felt "pretty good" on getting competition approval for the deal.
Asked whether Akzo expected any resistance from shareholders, Wijers said he was confident that the deal would close towards the end of this year. "This is clearly a value enhancing deal," he said. However, some analysts were not convinced.
"Akzo Nobel can create significantly more value at lower risk if it would not acquire ICI," Rabobank analysts wrote in a research note, advising Akzo investors to vote against the deal.
Akzo, which once described ICI as a "beautiful company" to acquire, clinched the deal after raising its price twice since June. ICI was founded in 1926 from four companies including Nobel Industries, the business created by Alfred Nobel, the inventor of dynamite, that later became part of Akzo Nobel.
The British group rejected a 600-pence-a-share proposal from Akzo in June, and then a 650-pence-a-share offer last month after Akzo teamed up with Henkel. Akzo gave no indication of ICI Chief Executive John McAdam's role in the combined firm.
Akzo said it expected to achieve annual pretax operating cost savings from ICI's paint business of 280 million euros.
It expects a one-time restructuring charge of 315 million euros. Wijers said he expected to cut jobs but declined to detail where they would come from or how many.
The Dutch group is side-stepping the current turbulence in debt markets by paying for the deal with proceeds from the 11 billion euro sale of its Organon drugs unit to Schering-Plough Corp.
"It is not clear whether the concerned Akzo shareholders will want to engage in a fight with management on this deal," Petercam analysts wrote in a research note. "If they (do) Akzo is a clear takeover target."
ICI has long been tipped as a bid target after slimming down to focus on higher-margin paints and adhesives.
A source familiar with the matter told Reuters earlier this month that U.S. group Dow Chemical was also interested in bidding for ICI.