10 COATINGS ACQUISITIONS that shook the decade.

Acquisitions and asset-stripping, power struggles and leap-frogging for the number one spot. A review of the coatings deals that transformed the corporate landscape of the nineties.

Huge buy-outs and colossal sell-offs characterised the '90s. As the decade progressed, the deals became

bigger, the purchases more targeted and their scope truly global. This in turn resulted in strategic disposals. It was the accepted corporate mantra that business competency involved stripping down to three or four core areas. Demergers became a new art form, as the '90s veered between the opposing forces of growth and deconstruction.

Looking back on the coatings deals that transformed the corporate landscape, it is apparent that the huge acquisitions, rather than the sell-offs, have left a more permanent impression. The top 10 deals are shown in Table 1.

Table 1: in the '90s, buy-outs like these 10 reshaped the paint industry's landscape

Date   Buyer                Acquired company

1993   Akzo (Netherlands)   Nobel (Sweden)

1995   Valspar (USA)        Coates (Total) Can
                            Coatings (UK/France)

1996   ICI (UK)             Bunge Paint
                            (Argentina, Brazil,
                            Uruguay)

1996   Sherwin-Williams     Thompson Minwax
       (USA)                (USA)

1997   ICI (UK)             Unilever Speciality
                            Chemicals (worldwide)

1998   Akzo Nobel           Courtaulds (UK)
       (Netherlands)

1998   DuPont (USA)         Herberts (Germany)

1999   Total (France)       Kalon (UK) - minority
                            interest and merger
                            with Petrofina, incl.
                            Sigma (Netherlands)

1999   PPG Industries       ICI's refinishing
       (USA)                business (worldwide)

1999   PPG Industries       PRC-DeSoto (USA,
       (USA)                UK, France)

Runner up

1999   Rohm and Haas        Morton International
       (USA)                (USA)

Buyer                Business area               Price

Akzo (Netherlands)   Decorative and industrial   1.38bn
                     coatings, inks, adhesives   [pounds sterling]

Valspar (USA)        Metal decorating            n/a

ICI (UK)             Decorative, industrial      $390m

Sherwin-Williams     Woodcare and                $830m
(USA)                waterproofing

ICI (UK)             Adhesives, flavours,        4.9bn
                     fragrances, detergents,     [pounds sterling]
                     fat chemicals

Akzo Nobel           Marine, protective, coil    1.8bn
(Netherlands)        aircraft, powder            [pounds sterling]

DuPont (USA)         Automotive OEM,             $4.9bn
                     refinishing, powder

Total (France)       Decorative                  439m
                                                 [pounds sterling]

                     Decorative, industrial,     $7bn
                     protective, marine

PPG Industries       Refinishing                 425m
(USA)                                            [pounds sterling]

PPG Industries       Aerospace                   $512.5m
(USA)

Rohm and Haas        Adhesives, powder,          $4.9bn
(USA)                polymers, chemicals

Only coatings companies proper -- not raw material producers -- have been selected and the focus is on international deals with potential global implications.

AKZO RESCUES NOBEL, 1993

Netherlands-based Akzo launched a rescue operation of Nobel's debt-ridden holding company in a 1.38 [pounds sterling] billion transaction in 1993. This created a mighty chemical empire and the world's biggest paint company with 75,000 employees and revenues in excess of 7 billion [pounds sterling].

The biggest synergy from this union came from the coatings sector, reaching combined sales of 2.2 billion [pounds sterling] in 1992, compared to ICI's paint turnover of 1.58 [pounds sterling] billion. The merger gave a great boost to the company's decorative paint sector, resulting in European market leadership with particular strength in Belgium and the UK.

In the UK, where Sandtex, Blundell Permoglaze and Macpherson were owned by Akzo, and Crown Berger by Nobel, Akzo Nobel became the number two in the decorative market behind ICI.

Both companies had grown big through acquisitions: 14 new subsidiaries and two joint ventures for Akzo in the 10 preceding years and 19 for Nobel. Most of Akzo's paint companies were in Europe -- ranging from the Benelux and the UK to Spain and Hungary. In the Americas, Akzo had bought Tintas Ypiranga in Brazil and General Paints in Mexico in 1988 and Reliance Universal in the US in 1989. It also had a joint venture in China as well as powder coatings interests in China, Europe and the US as a result of a business swap with DSM.

Nobel's paint interests, though they were confined largely to Europe, were substantial nonetheless. Since the mid-'80s, hardly a year had gone by without one or two acquisitions. Among them were Duco in France, Sadolin & Holmblad in Denmark (with worldwide subsidiaries), Arrigord in Italy, Vivechrom in Greece, Trimetal in Belgium, Crown Berger in the UK, and Jamcolor in Italy.

In short, both companies labelled their union a perfect fit, the natural complement to their respective operations, both industrially and geographically. It was the first mega-merger of the decade.

VALSPAR TARGETS COATES' CAN COATINGS, 1996

In 1996 came Valspar's acquisition of Coates Coatings, Total Chimie's worldwide packaging coatings arm with 40 sites in Europe, Australia, the US, Africa and southwest Asia.

The purchase (for an undisclosed amount) of the US$125million business was attractive to Valspar for two reasons: technology and geography. Coates' inks and metal decorating technology, in which Valspar was weak, had special appeal. Its worldwide geographic spread was a further bonus in helping Valspar to expand globally.

In 1998, Valspar further augmented its holdings by buying Dexter's $212 million packaging business complete with overseas European subsidiaries. This major thrust into packaging coatings was to threaten ICI's long-standing global leadership in the sector.

ICI STRIKES BACK WITH BUNGE, 1996

One upshot of the Akzo Nobel merger was to displace ICI from its global leadership in paint. In 1996, ICI reclaimed the number one spot by acquiring Bunge's South American paint empire.

The $390 million Bunge deal lifted ICI's share in the then-burgeoning South American paint market from 2.5 to 15% -- ahead of Akzo Nobel's 10% -- as well as confirming its world leadership once again. The Bunge empire held a leading position in the Mercosur region, comprising Alba in Argentina, Coral in Brazil and Pinturas Inca in Uruguay plus a subsidiary in Paraguay. With sales in excess of $400 million a year, Bunge's turnover was thought to be bigger than ICI's entire European decorative paint business. Indeed with five factories in the region, 2800 employees, a trading profit of $55 million and an annual output of 200 million litres of paint, Bunge controlled more than a quarter of Mercosur's decorative paints business. It was the Bunge purchase that made ICI the first company in the world to sell more than 200 million litres of paint.

SHERWIN-WILLIAMS VENTURES OVERSEAS, 1996

In 1995, ICI's rival Sherwin-Williams had acquired Pratt & Lambert in an all-American transaction. Later in 1996, Sherwin-Williams surprised the coatings world with its $830 million purchase of the Thompson Holding Corporation from Eastman Little. This business, acquired only two years earlier for $700 million from Eastman Kodak, brought with it Minwax interior woodstains and varnishes, Thompson & Formby exterior water sealers, Red Devil paints and Formby enamels and Roncraft's Ronseal interior and exterior stains and varnishes.

Minwax represented a $375 million business, specialising in woodcare brands and domestic waterproofing products. The importance of the acquisition, Sherwin-Williams' 17th in that year, was immense: it raised transaction prices to new heights; it raised the company's profile in the $900 million US woodcare sector, and it gave the company access to the UK market, lending America's `first' paint company a European dimension.

Two years later in 1998, the European woodcare sector was again reshuffled when ICI, Sherwin-Williams' rival, bought the home improvement division from Williams Holdings for E350 million. Among the famous brands was Cuprinol, a Ronseal competitor, bringing ICI and Sherwin-Williams into direct competition in the UK woodcare market.

ICI BUYS UNILEVER AND RE-INVENTS ITSELF, 1997

In May 1997, ICI embarked on a purchase that was to set the company on an entirely new course, practically forcing it to re-invent itself. Under the new chief executive, a former Unilever man, ICI chose to dispose of its industrial chemicals and buy Unilever's speciality chemicals division instead, and with it a new corporate culture and market orientation. For 4.9 billion [pounds sterling], ICI acquired four businesses: National Starch and Chemical, a worldwide manufacturer of speciality starches and industrial adhesives; Quest, a producer of food flavours and fragrances; Unichem, a manufacturer of chemicals from natural fats; and Crosfield, a specialist in detergent ingredients.

National Starch alone enjoyed sales of 1.55 billion [pounds sterling] and an operating income of 213 million [pounds sterling]. Total turnover of the acquired group stood at 2.9 billion [pounds sterling], the operating income at 357 million [pounds sterling]. What is more, all the Unilever businesses had operating margins above 20%, while ICI's reached only 4%. The purchase promised to make the world's largest paint company into one of the world's top 10 speciality companies -- number one in flavours, fatty acids and speciality starches -- and a highly profitable group at that. Its new adhesives empire stretched from Europe and the US to Latin America and Asia Pacific.

The deal had a downside. To help finance the 4.9 [pounds sterling] billion purchase, ICI had to borrow heavily as well as to dispose of its cyclical chemical businesses, comprising polyesters, fertilisers, chlorine, explosives and titanium dioxide -- roughly 60% of the old ICI. The disposals preoccupied ICI for the next two years.

Disposal of ICI's Australian assets, including the paint company Dulux Australia, resulted in a general restructuring of the Australian paint market. The new holding company, renamed Orica, embarked on its own strategic reorganisation. It retained mainly decorative and powder coatings, selling its technical coatings business (automotive OEM, refinishing, packaging and coil coatings) to PPG.

DEMERGER-TURNED TAKEOVER: AKZO NOBEL BUYS COURTAULDS, 1998

1998 was the classic year of the mega-deal, a year when two of the coatings industry's titans fell prey to takeovers. Courtaulds was the first to go. Its initial impulse early in 1998 was to embark on a fundamental restructuring in the interests of shareholder value. By April, Akzo Nobel had made a bid for the entire company, complete with the poorly-performing fibres division. Meanwhile, PPG showed interest in Courtaulds as well.

In June Akzo Nobel extended its 1.8 billion [pounds sterling] offer, agreed to sell Courtaulds' worldwide packaging and US architectural business (Porter Paint) to PPG for 175 million [pounds sterling], and by July, approval by the EC regulatory authorities had been obtained.

Even without the packaging business and Porter Paint, the ramifications of the deal were stunning. Not only did Akzo Nobel regain leadership in the global paint market from ICI, the company also became number one in the marine field as well as in powder coatings worldwide.

The repercussions for aerospace, where Akzo Nobel and Courtaulds would have controlled three quarters of the world market, were still to come in the form of a later divestment to PPG.

However, too much synergy can lead to duplication, as Akzo Nobel was to discover. Hence the company's recent announcement that some restructuring of its diverse holdings is imminent.

DUPONT BECOMES NO.1 IN AUTOMOTIVE-OEM, 1998

The second mega-deal in that annus mirabilis 1998 was DuPont's $1.89 billion purchase of the Herberts group from Hoechst.

The first prospective buyer for Herberts was the US equity firm KKR -- the deal foundered over price. DuPont bettered the offer and gained a DM2.7 billion company with 7500 employees and manufacturing facilities in Europe, North and South America and Asia Pacific. As a result, DuPont -- the leader in both automotive OEM and refinishing in North and South America -- became the world leader in automotive coatings with a 30% share. It was also the third largest paint company worldwide with combined sales of $3.7 billion and 14,000 employees.

The DuPont-Herberts fit was ideal. The companies had complementary assets, technology and geographical market strengths. It meant the acquisition posed no monopoly problem because three quarters of Herberts sales were in Europe and three quarters of DuPont's income derived from the US. Although the new DuPont Group also held leadership in Europe's automotive OEM market, PPG, with a 35% share, was not far behind. Herberts also brought a substantial powder coatings business to DuPont, covering Europe, North America and Asia Pacific.

The Herberts business has since been reorganised as DuPont Performance Coatings (DPC).

TOTAL FINA MERGER GIVES BIRTH TO SIGMA KALON, 1999

Creation of the Sigma Kalon constellation during 1999 has its roots in the complex corporate histories of both Kalon and Total.

Back in 1995, Kalon -- which had achieved a meteoric rise in the UK paint industry during its 45 year history -- announced its merger with Total which, via a share exchange, assumed a controlling interest in Kalon. Kalon already owned Novodec in France, while Total owned Manders and Johnstone's Paint in the UK and a diverse collection of French, Hungarian and African subsidiaries.

After the merger Kalon became Total's paint arm, with subsequent acquisitions in the Netherlands, Portugal, South Africa and Poland. Kalon's bid for Poland's market leader Polifarb Cieszyn-Wroclaw came only months before Total assumed complete control over Kalon by buying its outstanding minority interest (34.1%) for 429 [pounds sterling] million in March 1999.

Total's decision to acquire the whole of Kalon arose from its merger with the Petrofina oil group, together with its Sigma paints subsidiary. In the event, Total chose to merge Kalon into the more diversified Sigma business, which extended to worldwide interests in the marine and protective coatings market as well as its European industrial and decorative paints. Sigma Kalon was born.

PPG WINS AUTOCOLOR FROM ICI, 1999

1999 was less spectacular but no less eventful than 1998. ICI's post-Unilever transformation was part and parcel of Autocolor's move into the market. Ostensibly the business was sold to PPG for f425 million because its size could not sustain a truly global leadership position. The 285 million [pounds sterling] business, which had net assets of 120 million [pounds sterling], consisted of Autocolor in the UK, with worldwide interests in automotive refinishing and re-livery of commercial vehicles; Grow Automotive, a North American solvent and thinners business; and diverse industrial coatings businesses in Asia and Latin America.

The divestment in the summer of 1999, roughly at the same time as that of tioxide and polyurethanes to Huntsman, made a welcome contribution to ICI's debt repayment burden. At the same time it strengthened PPG's growing penetration of the European refinishing sector, in the aftermath of the earlier purchases of the MaxMeyer refinishing and Sigma truck coatings businesses. In the UK in particular, PPG's market share in this sector shot up considerably.

... AND BUYS PRC DESOTO FROM AKZO NOBEL, 1999

Akzo Nobel's divestment of PRC DeSoto, the Courtaulds business that it had acquired only the previous year, was dictated by regulatory requirements. Courtauld's worldwide aerospace conglomerate, added to Akzo Nobel's 60% share in its aerospace joint venture with Dexter, gave Akzo Nobel an undue concentration. Akzo Nobel was therefore obliged by the European Monopoly Authorities to sell one of the businesses.

In the event, Dexter's desire to sell its share in AD Aerospace prevailed upon Akzo Nobel to buy out Dexter and sell the larger Courtaulds business instead. For $512.5 million, PPG gained a worldwide aircraft coatings and sealants business. It had sales of 240 [pounds sterling] million, employed 1200 and comprised: sealant manufacture in the US and the UK, coatings manufacture in the US and France, glazing sealants production in the US, and 14 application support centres throughout North America, Europe, Africa, Asia and Australia.

The purchase of the ICI refinishing and Courtaulds aerospace businesses was the largest in PPG's history. Together they achieved nearly $460 million in 1998 sales and they altered the relative importance of PPG's product mix in favour of refinishes, aerospace and packaging coatings.

ROHM AND HAAS ENTERS THE COATINGS MARKET, 1999

If PPG's double purchase of Autocolor and PRC-DeSoto is viewed as a single transaction, then the Rohm and Haas/Morton merger early in 1999 could serve as the 10th super deal of the decade.

At $4.9 billion, the deal was massive and it was definitely global. It made Rohm and Haas, a supplier to the coatings industry, into an international coatings manufacturer for the first time. It also had wider repercussions in the US and abroad, signifying Rohm and Haas' entry into the powder coatings market and the creation of a specialist adhesives company with sales of $500 million. Morton was a leader in powder coatings -- through Pulverlac in Italy and the Lamineer brand in the US -- as well as a prominent producer of flexible packaging adhesives based on urethane and acrylic chemistry.

One year on, the merger has also opened the door of opportunity to BASF with the sell-off of Morton International's North American industrial coatings business to the German company. The $155 million operation, mainly in coil coatings, employs 500 people on five US production sites, complementing BASF's European operations.

MERGERS AND DEMERGERS IN PERSPECTIVE

Mergers alternated with demergers and acquisitions with divestments in the action-packed '90s. A lean, highly focused company was the corporate ideal of the last decade. But in this first decade of the new Century, could diversification -- as seen in Akzo Nobel's plunge into marine coatings -- be making a comeback?

At the heart of the coatings industry lies a continual ebb and flow of corporate self-renewal and break-up. Modest acquisitions often act as stepping stones to further purchases, while big omnibus transactions sometimes result in later divestments.

No doubt the fall-out from the decade's mega-deals is not yet complete. Further corporate swelling and slimming can be expected, the full implications of which are likely to play themselves out well into the 21st century.

REFERENCES

[1.] Modern Paint Coatings, Dec 1999, 89 (12), 3 8-40

HELMAN JOTISCHKY, PAINT RESEARCH ASSOCIATION 8 WALDEGRAVE ROAD, TEDDINGTON, MIDDLESEX, TW11 8LD, UK.

TEL: +44 181 614 4800. FAX: +44 181 943 4705.