The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Karen Kwok

LONDON, Nov 18 (Reuters Breakingviews) - A transatlantic tie-up in the not-so-glamorous world of paint coatings has been on the canvas for over eight years. Now, a deal between $11 billion Dutch group AkzoNobel AKZO.AS and U.S. peer Axalta Coating Systems AXTA.N should finally come good. It’s a complex deal framed as a merger of equals, but with enough cost savings to make both shareholders happy.

AkzoNobel and Axalta first flirted back in 2017, after the Dutch group had to fend off three hostile approaches from U.S. rival PPG Industries PPG.N and the Philadelphia-based Axalta fielded a bid from Japan’s Nippon Paint 4612.T. This time, the market backdrop will help seal the deal. Revenue at both companies is forecast to decline by over 3% this year, down from double-digit growth in 2022, according to Visible Alpha, as the market for paint has slowed. Share prices have been disappointing too, down 7% and 20%, respectively, over the past two years.

The economics of the deal, though, are solid. An all-share merger will see owners of the larger AkzoNobel walk away with 55% of the combined group, and a 2.5 billion euro special dividend. Axalta’s 45% share is worth $6.5 billion, based on the companies’ combined undisturbed market values, implying its shareholders are receiving a roughly 7% premium. In return for paying that, AkzoNobel gets to put its CEO Greg Poux-Guillaume in the driving seat. Both sides, however, should gain: the $600 million of expected cost savings, taxed at 24% and valued at 10 times, yield $4.5 billion of extra value.

That helps explain why Axalta shares rose 4% on Tuesday morning, while AkzoNobel’s slipped 2%. Still, besides the expected savings, the Dutch group’s shareholders should benefit from being part of a more profitable, larger group. Axalta brings an expected 22% EBITDA margin in 2025, using Visible Alpha data, versus AkzoNobel’s 14%, and the combined company could eventually get closer to 20%, according to Poux-Guillaume. As part of the deal, the Dutch company will also spruce up its governance, abandoning a dual board structure that could previously hinder tie-ups. And its shares will now be listed in the bigger, more liquid U.S. market.

Perhaps best of all, the deal may not face much friction. PPG, a previous suitor, would likely trip antitrust alarms if it tried to crash the deal, as a tie-up with Axalta could give it over 50% of the global auto-coating market, Bernstein analysts reckon. Sherwin-Williams SHW.N is another potential bidder, but with its market-leading margins and valuation, it may be reluctant to dabble with either AkzoNobel or Axalta. Debt-laden Nippon Paint, with borrowings hitting 3 times EBITDA, is less likely to be able to offer a larger cash premium. After years of patchy attempts, the paint on this deal may finally dry.

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CONTEXT NEWS

Dulux paintmaker AkzoNobel said on November 18 that it plans to merge with paintmaker Axalta Coating Systems, in a deal that will create a combined company with an enterprise value of $25 billion.

The combined company will be initially dual-listed in Amsterdam and New York before moving to a single NYSE listing, and maintaining dual headquarters in Amsterdam and Philadelphia. It will be led by current AkzoNobel Chief Executive Greg Poux-Guillaume as CEO.

Shares in AkzoNobel were down 1.4% at 1406 GMT on November 18.

(Editing by Neil Unmack; Production by Streisand Neto)

((For previous columns by the author, Reuters customers can click on KWOK/karen.kwok@thomsonreuters.com))