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Akzo Nobel Unveils $2.8 Billion Buyback Program

Dutch chemical group Akzo Nobel unveiled a 2 billion euros ($2.8 billion) share buyback and raised its dividend payout ratio on Monday as it seeks shareholder approval for its $16.3 billion purchase of Britain's ICI.

Akzo Nobel, set to hold an extraordinary meeting on Nov. 5 on the proposed takeover of Imperial Chemical Industries, raised its interim dividend by a third to 0.4 euros per share and its minimum payout ratio to 45% of net income before incidentals from the current 35 to 40%.

"Dividend is clearly a key factor for certain groups of shareholders. This is an element of listening to our shareholders and we are pretty optimistic that we will have a full shareholder support for the deal," Akzo Chief Executive Hans Wijers told reporters in London.

Akzo Nobel, which had to raise its bid for ICI twice, faces opposition from at least one major investor, U.S. fund TPG-Axon.

"We are not trying to woo specific shareholders. We listen to groups of shareholders and potential shareholders... We will continue our constructive discussions with TPG and many other shareholders," Wijers said.

Hedge fund Paulson & Co, which owns 5.1% of the group, said last week it would vote in favour of the deal.

Wijers said the group aimed to boost its margins to above the industry average by outgrowing its markets and restructuring its underperforming decorative coatings.

Its margin on earnings before interest, tax, depreciation and amortization (EBITDA) is around 12.7%, underperforming the industry average of 13.9% and major rivals such as DuPont at 19.8% and BASF at 18%.

Akzo Nobel shares were up 1.5% at 60.83 euros, outperforming a 0.9% higher DJ Stoxx European chemical index.

Akzo said it will start a 2 billion-euro share buyback in the second half of next year and return 1 billion euros in paid-in capital after the buyback.

Citigroup analysts said the 2008 dividend plan implies a payout of around 2 euros per share, versus its 1.5 euros forecast.

"With ... Akzo Nobel close to several key transaction hurdles, the share price appears to trade below our view of fair value," they said, keeping buy ratings.

Transformation

Akzo agreed in August to buy ICI, which makes Dulux paints, for 8 billion pounds ($16.3 billion) to create the world's biggest paint maker and retain its lead in industrial coatings.

A combined Akzo-ICI will have about 15% of the world's $85 billion-a-year coatings industry, versus about 10% for PPG, which plans to buy Dutch rival SigmaKalon, and will boost Akzo's position in North America and fast-growing emerging markets.

"The coatings and paintings industry is very attractive -- it generates a lot of cash flow and it's not capital intensive.

It's fragmented still after this deal. You can expect this consolidation to continue," Wijers said, adding Akzo Nobel would continue to consider bolt-on opportunities.

Akzo expects the ICI takeover to close on Jan. 2, 2008 and synergy benefits of around 2.5 billion euros ($3.5 billion).

Akzo Nobel, which has around 62,000 employees in 80 countries, said it would introduce a defined contribution pension plan for new entrants as it seeks to reduce its deficit of more than 2 billion euros.