Akzo Nobel N.V. (ENXTAM:AKZA), may sell only its paints business in India while keeping the industrial coatings business, even as three suitors prepare to place financial bids for the maker of Dulux paints, two people aware of the matter said. Pidilite Industries Limited (NSEI:PIDILITIND), JSW Paints Limited and Indigo Paints Limited (NSEI:INDIGOPNTS) have entered the second round of discussions with the paintmaker, the people cited above said on the condition of anonymity. The company, they said, is expecting a valuation of $1.5 billion - $1.7 billion for the consumer paints business.
AkzoNobel, Europe's biggest paintmaker, announced a strategic review of its India business last year. On 17 December, Mint reported that Pidilite, Indigo Paints and JSW have entered the race for Akzo Nobel India, whose parent has hired Citigroup to sell the 74.6% promoter stake. "The discussions suggest a valuation of at least $1.5 billion - $1.7 billion for the business-to-consumer (B2C) business only.
It is more likely that the direct consumer-facing paints business could be acquired by one of the three contenders in the second round," one of the two people said on the condition of anonymity. While Pidilite plans to make a solo bid, JSW Paints may team up with private equity firms Blackstone or TPG, the person cited above said. Indigo Paints may partner Advent International or Warburg Pincus.
In case AkzoNobel India decides to sell the industrial coating business as well, it would target a valuation of up to $2.2 billion, the people said. Publicly listed Akzo Nobel India has a market valuation of $1.75 billion. Spokespersons of TPG, Warburg Pincus and Advent Global declined to comment.
Emails sent to AkzoNobel NV, AkzoNobel India, Pidilite, JSW group, Indigo Paints, and Blackstone remained unanswered. "It is a bit tricky to sell the B2B business of coatings. Such businesses are protected by intellectual property rights and involve long-term agreements extending up to 10, 15 or 20 years with other companies in the industrials space.
Coatings business needs technical knowhow and involves expertise in chemicals technology, which is why it can't be sold off so easily," the second person said. In industrial coatings, the country's largest paintmaker Asian Paints Ltd. has a JV with US-based PPG Inc., Kansai Nerolac has a tie-up with ICRO Coatings and Polygel Industries, and Nippon Paints has tie-ups Italy's IVM Chemicals and others. According to the second person, buying the industrial coatings business as well it may involve forging multiple arrangements apart from paying a higher valuation for AkzoNobel India.
"The final discussion on the exact assets that could be acquired from AkzoNobel by any of the three is yet to start," the second person said. Globally, AkzoNobel has one of the largest industrial coating businesses. In India, it has multiple industrial coating contracts, including with the Indian Navy.
The company recently painted warship INS Vikrant. On 7 February, in an earnings call, Rajiv Rajgopal, chairman and managing director, AkzoNobel India said, "The globe believes that given the global assortment and portfolio, the ability to invest now with the sort of competition you're seeing in India perhaps needs a little bit of a local hand. And that's what we are trying to do." Earlier in January, AkzoNobel's Dutch owners said the industrial coatings business and R&D unit will be carved out and taken directly under the parent entity.
"They (the bidders) have to disclose how much they are willing to pay for each asset of AkzoNobel India. Based on these bids, the due diligence of AkzoNobel India will begin. AkzoNobel has solid assets and a superior distribution strength than most others in the paints space, which is key to assessing the value of a paints business," said the second person.
The due diligence process may take four to five months, this person added.
