Dutch company to buy Sico

Akzo Nobel NV's proposed $284-million takeover of Canadian paint giant Sico Inc. is not the end of the venerable company started in the late 1930s by two Quebec entrepreneurs, but an opportunity to pursue a North American growth strategy with the backing of a global heavyweight, Sico's top executive says.

"Akzo Nobel's intention is to develop the North American market, and Sico is the first step," president and chief executive officer Pierre Dufresne said in an interview yesterday after the surprise announcement of the deal, which sent Sico shares soaring 41 per cent on the Toronto Stock Exchange.

Mr. Dufresne said Sico -- founded in a borough of Quebec City by Marcel Deslauriers and Roméo Filion with $1,400 in startup capital -- has a commitment from Netherlands-based paint and chemicals giant Akzo Nobel to keep the existing management team in place, and work with it on expansion in North America.

Akzo Nobel, which bills itself as the world's largest coatings manufacturer, had been seeking a North American presence on the paint side and Sico fit the bill, Mr. Dufresne said.

Sico, now based in Longueuil, Que., is already an exclusive distributor in Eastern Canada for selected Akzo Nobel products, such as its Sikkens line of protective wood coatings.

The unsolicited $20-a-share cash offer -- representing a premium of 44 per cent over Siko's average closing price of the past 20 days -- was unanimously approved by Sico's board on the recommendation of a special three-person committee of independent directors, the company said.

Sico's two principal shareholders -- chairman Jean-Pierre Lortie, with about 19 per cent, and private investor Pierre Somers of Montreal, with about 15 per cent -- have agreed to tender their shares to Akzo Nobel in a so-called "hard lockup," which means their shares cannot be switched to a rival bidder.

Sico shares jumped $5.82, or more than 41 per cent, to close at $19.82 yesterday in trading on the TSX, an indication that a rival bid is not anticipated, said analyst Benoît Caron at Canaccord Capital Inc.

U.S. giant Sherwin-Williams Co. would be a likely bidder, but the lockup agreement with the two major shareholders makes a competing offer unlikely, Mr. Caron said.

The takeover agreement reflects the consolidation in the paint and coatings sector, as manufacturers bulk up to gain leverage with their suppliers and their major buyers, such as home-renovation centres, he said.

Sico is also in the industrial coatings business, but it is small compared with its core paint-making division.

Mr. Dufresne said Sico also expects its brand profile to get a boost from the association with Akzo Nobel, and its employees to benefit from access to "world-class" expertise and technology.

Sico is the leading purveyor of paint in Canada, with 23 or 24 per cent of the market, just ahead of rival CIL, part of British conglomerate Imperial Chemical Industries PLC, Mr. Caron said.

Sico, which employs about 1,000 people in Canada, has seen a softening of demand for architectural paint products since the home-building and renovation boom of a few years ago.

But it also has its costs under control, is debt free and generates impressive cash flows, all good reasons for the 44-per-cent premium Akzo Nobel is shelling out, Mr. Caron said.

Sico said yesterday it expects the transaction to close in the second quarter.