Case #4: AkzoNobel (Prod. #: IN1577-PDF-ENG) The case covers events leading to the hostile bid for AkzoNobel by PPG in 2017, the market response that it prompted, and Akzo's takeover defenses including the divestment of a division and large cash payout. Various scenarios (as a standalone; after an asset sale) are considered for the valuation of AkzoNobel, as is the rationale behind the various takeover bids by PPG. The role of activists in triggering the takeover process is highlighted. Alternative payout mechanisms (capital repayment, dividend payment, share buyback) are discussed. 4. According to the forecast in Exhibit 8, would AkzoNobel's standalone (selling Specialty Chemicals business) create more value to the shareholders than the PPG offers? 3. According to the forecasts in Exhibit 7 and with the assumptions below, was the Management correct that the PPG offers undervalued AkzoNobel? Cost of Debt: 1.7%, Target D/V: 20%, Tax Rate: 27%, Risk-free Rate: 0.48%, Beta: 1.125, Equity: 20,032M, Market Risk Premium: 5%. Exhibit 7 Forecasts and Assumptions for AkzoNobel in 201753 Assumptions 2015 2016 2017 2018 2019 2020 CV Sales Growth (%/yr) 3.9% -4.5% 5.1% 2.9% 3.3% 2.2% 2.0% COGS+SGA (% of Sales) 85.9% 85.2% 85.4% 85.3% 85.0% 85.4% 85.4% EBITDA Margin (% of Sales) 14.1% 14.8% 14.6% 14.7% 15.0% 14.6% 14.6% Depreciation (% of PPE) 15.6% 14.5% 14.8% 14.4% 14.5% 14.7% 14.6% EBIT Margin (% of Sales) 9.8% 10.6% 10.4% 10.5% Marginal Tax Rate 27.1% 27.4% 28.0% 27.5% 10.9% 10.4% 10.4% 27.5% NOPLAT (% of Sales) 7.5% 7.6% 7.8% 7.6% 4.6% PPE (% of Sales) 27% 30% 28% 29% 29% 29% 29% WCR (% of Sales) 5% 6% 6% 6% 7% 7% All values in EUR Million (unless otherwise stated) Forecasts 2015 2016 2017 2018 2019 2020 CV Sales 14,859 14,197 14,921 15,360 15,874 16,218 16,542 COGS + SGA 12,771 12,089 12,750 13,106 13,493 13,842 14,122 EBITDA 2,088 2,108 2,171 2,254 2,381 2,375 2,420 Depr. & Amort. 626 606 625 638 656 684 EBIT 1,462 1,502 1,546 1,616 1,724 1,692 694 1,726 Taxes 416 NOPLAT 1,046 394 1,108 419 1,126 443 1,172 484 1,241 466 1,226 475 1,251 Depr. & Amort. 626 606 625 638 656 684 Capex 793 647 861 754 808 AWCR 72 71 59 60 66 Free Cash Flow 849 1,033 891 1,083 1,036 PPE 4,003 4,190 4,212 4,434 4,532 4,656 4,749 Capex=APPE+Depr 793 647 861 WCR 772 844 915 974 754 1,034 808 1,100 AWCR 72 71 59 Other Assets 5,988 5,988 5,988 60 5,988 66 5,988 Invested Capital 9,829 11.022 11.115 11,397 11,554 11,744 ROIC 11% 10% 11% 11% 11% Exhibit 8 Forecasts and Assumptions for AkzoNobel in 2017 for a Sale Scenario of Specialty Chemicals in 201854 Assumptions 2015 2016 2017 2018 2019 2020 CV Sales Growth (%/yr) 3.9% -4.5% 5.1% -31.6% 3.3% 3.3% 2.0% COGS + SGA (% of Sales) 85.9% 85.2% 85.4% 87.8% 87.4% 87.6% 87.6% EBITDA Margin (% of Sales) 14.1% 14.8% 14.6% 12.2% 12.6% 12.4% 12.4% Depreciation (% of PPE) 15.6% 14.5% 14.8% 14.9% 14.9% 14.9% 14.9% EBIT Margin (% of Sales) 9.8% 10.6% 10.4% 9.2% 9.6% 9.4% 9.4% Marginal Tax Rate 27.1% 27.1% 27.1% 27.1% 27.1% NOPLAT (% of Sales) 7.5% 6.7% 7.0% 6.9% 4.6% PPE (% of Sales) 27% 30% 28% 20% 20% 20% 20% WCR (% of Sales) 5% 6% 6% 8% 8% 8% All values in EUR Million (unless otherwise stated) Forecasts 2015 2016 2017 2018 2019 2020 CV Sales 14,859 14,197 14,921 10,202 10,539 10,888 11,106 COGS + SGA 12,771 12,089 12,750 8,958 9,212 9,538 9,729 EBITDA 2,088 2,108 2,171 1,244 1,328 1,351 1,377 Depr. & Amort. 626 606 625 304 314 325 331 EBIT 1,462 1,502 1,546 940 1,014 1,026 1,046 Taxes 416 NOPLAT 1,046 394 1,108 419 255 275 278 284 1,126 685 739 748 763 Depr. & Amort. 626 606 625 304 314 325 Capex 793 647 304 381 394 AWCR 72 71 26 27 Free Cash Flow 849 1,034 685 645 651 PPE 4,003 4,190 4,212 2,040 2,108 Capex=APPE+Depr 793 647 304 381 2,178 394 2,221 WCR 772 844 915 785 811 838 AWCR 72 71 26 27 Other Assets Invested Capital 9,829 5,988 11,022 5,988 11,115 3,745 3,666 3,584 6,570 6,584 6,599 ROIC 11% 10% 11% 11% 11%