Akzo Nobel N.V – Imperial Chemicals Industries plc.

AkzoNobel N.V is a Dutch multinational company, specializing in coatings and specialty

chemicals. The company’s history can be traced back to the 17th century but the present entity
was created in 1994 by the merger of the Dutch company, Akzo and the Swedish company Nobel.

ICI was formed when four British chemical companies merged in 1926. By 1970s, it had expanded
into continental Europe and the USA with a diverse variety of products ranging from heavy
chemicals to pharmaceuticals. It continued to grow meteorically throughout the 80s, however, in
1993, owing to shrinking customer base and tough competition from abroad, it began slimming
down and sold off its pharmaceutical business as Zeneca. On January 2, 2008, following the initial
announcement in August 2007, ICI was taken over by AkzoNobel N.V.

The Acquisitions
After AkzoNobel sold off its pharmaceutical business Organon in 2007, it became a much more
focused in the coatings sector, which was now considered to be the core business of the group.
The chief executive of the group, Hans Wijers identified ICI as the next attractive target because
of the many strategic and financial benefits. One of the most important benefits was the possible
creation of one of the largest coatings and specialty chemical company in the World. Akzo was
the global leader in industrial coatings and ICI was very strong in the decorative paint market.
Many solvents and chemicals are common to both the companies and this give tremendous
synergy opportunities for the combined company .The enlarged Akzo Nobel group could also
benefit from a diversified and broad geographic presence and highly attractive platforms for
growth in emerging markets .

At the time of the deal, the strategic synergies estimated by Akzo was €280mn. Financially, the
deal was expected to enhance the earnings to the shareholders, generate an internal rate of
return above Akzo Nobel’s WACC (8%) and create positive EVA in year three following the
transaction.
Akzo paid 670p for each ICI share and the deal was finalised for ₤8.0bn on January 2, 2008. Akzo
de-listed ICI from the London Stock Exchange on the January 3rd and sold off its adhesive and
electronic material business to Hankel. The majority of the ICI businesses were integrated into
Akzo.

Analysis
The acquisition of ICI by AkzoNobel was seen by the majority of the analysts as a good strategic
deal. ABN AMRO (as quoted in Pansari, 2009) said, “… we certainly believe in the strategic
rationale behind the ICI acquisition… By acquiring ICI, AkzoNobel will be some 60% larger by
turnover than its nearest competitor. … ICI Coatings offers an excellent complementary fit, both
in terms of geographical spread and in product mix.” However, there were some doubts about
whether Akzo paid too much for the deal. Deutsche Bank’s comment (quoted in Pansari, 2009)
shows their scepticism, “We welcome Akzo’s efforts to make the proposed deal more attractive
but still struggle with the numbers. With integration risk, execution risk and a lack of visibility on
ICI management‘s future role the risk/reward profile is not attractive enough” But, the acquisition
has turned out to be successful with Akzo meeting all the synergy targets in time. Akzo initially
set a synergy target of €280mn by the end of 2010, which they updated to €340 mn in 2008. As
of 2009, they had delivered about 90% of the total value amounting to €300mn.

The main reasons for the success of Akzo were the presence of a well-planned integration plan
and the rapid implementation of that plan. Unlike BMW, which took no steps to integrate Rover in
the initial two years, Akzo planned on a total integration in the first three years. They were able to
find a balance between the cultural and linguistic differences between the two companies and
were thus able to avoid communication problems. The author believes that all of MacDonald and
Beavis’s (2001) key characteristics for a successful integration process namely a comprehensive
integration plan, rigorous cost/benefit/risk management control mechanisms, dedicated
leadership did exist in this deal. As a result of this successful deal, AkzoNobel is very well
positioned now with market leadership positions in many markets, excellent geographic spread
of sales and profitability and strong ability to outspend the competition in technology and
innovation without negatively affecting the profitability[key-11].

3 Conclusion
The success or the failure of a merger or acquisition activity depends upon a lot of factors – both
endogenous and exogenous. The presence of the right mix of people at the helm and the
presence of just a proper integration plan is not always enough. The speed of implementation has
to be there and the managers should be able to communicate properly their intentions to the lower
levels properly. Proper research into the acquired company and its activities are important for the
firms before going ahead with their merger plans. BMW made some key mistakes before going
ahead with the Rover deal regarding the speed of integration, communicating and lack of proper
research. Akzo, on the other hand, were well planned and their integration was swift and effective.
They overcame the communication and cultural problem and devised ways to create massive
synergies for the company.