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Akzo Nobel N.V.

 


Address:
Velperweg 76
NL-6824 BM Arnhem
Netherlands

Telephone: (85) 663761
Fax: (85) 664505


Statistics:
Public Company
Incorporated: 1969 as Akzo N.V.
Employees: 70,000
Sales: US $11.5 billion
Stock Exchanges: Many different European exchanges
SICs: 1479 Chemical and Fertilizer Mineral Mining, Not Elsewhere Classified; 2812 Alkalies and Chlorine; 2834 Pharmaceutical Preparations; 2841 Soap and Other Detergents; 2851 Paints, Varnishes, Lacquers, Enamels, and Allied Products; 2869 Industrial Organic Chemicals; 2890 Miscellaneous Chemical Products


Company History:

The Dutch company Akzo Nobel N.V. stands as a highly diversified conglomerate which conducts business in more than 50 different countries. In the mid-1990s, the company ranked among the ten largest chemical producers in the world and was the leading global manufacturer of paints and coatings. Akzo Nobel was also active in an expansive array of other industries, including health care, fibers, electronics, and energy. Akzo Nobel was formed in 1994 by the merger of Akzo N.V. of the Netherlands, and Nobel Industries of Sweden. Its operations are centered in the Netherlands, Germany, and the United States.

The merger of Akzo and Nobel represented the culmination of more than a century of acquisitions and mergers between two companies boasting rich pasts. Akzo's history can be traced as far back as the 18th century. For example, one of the coating units that it acquired, Sikkens, was formed in 1792. Another subsidiary, a food company named Duyvis, was founded in 1806. Further, Akzo's chemical interests in the U.S. were tied to Armour & Company, a leading meat packing organization that commenced operations in the 1860s. However, the foundation for Akzo originally sprang from Vereinigte Glanzstoff-Fabriken, a German chemical company formed in 1899. In the early decades of the 20th century, Vereinigte established itself in the chemical industry as a leading producer of rayon and various paints and coatings. In 1929, Vereinigte merged with Nederlandsche Kunstzijdebariek (NK), a competing Dutch manufacturer of rayon. The resulting organization was named AKU.

From the 1930s to the 1960s, AKU became a solid market leader in the development and manufacture of synthetic fibers. In addition to Rayon, AKU began producing such breakthrough man-made materials as nylon and polyester. Chief among the company's significant innovations was the invention of a material called aramid, a derivative of nylon. AKU experimented with this synthetic fiber in the late 1960s, and by the 1980s the company was selling the product under the name of Twaron. Unfortunately for AKU, fiber industry leader Du Pont was simultaneously developing the fabric under the name of Kevlar, and Du Pont succeeded in beating AKU to market. As a result, AKU was not only shut out of the lucrative U.S. market for the product, but it also faced stiff competition in its home market of Europe. AKU's failure to carve out a market for Twaron proved to be the culmination of a series of setbacks which adversely affected its synthetic fibers operations throughout the 1970s.

Indeed, AKU had enjoyed generous profits from its core man-made fiber products during the 1960s, and its corporate strategy looked sound for the 1970s. AKU joined forces with KZO--a major Dutch producer of chemicals, drugs, detergents, and cosmetics--in 1969, and the resultant organization became Akzo. Further expansion plans on the part of Akzo were thwarted in the early 1970s, however, when actions by the OPEC oil cartel wreaked havoc with petrochemical markets. Akzo's businesses, particularly those related to man-made fibers, suffered. In addition to these oil-related problems, the fibers market was affected by turbulence from other quarters. During this period, many synthetic fibers became a commodity product, and low-cost Far-Eastern manufacturers took control of many industry segments. Burdened by weak demand and manufacturing overcapacity, Akzo's profits plunged. By the late 1970s, some analysts speculated that Akzo was headed for bankruptcy.

Throughout this turbulent period, Akzo executives scrambled to overcome adversity. They reduced the percentage of revenues attributable to man-made fibers from more than 50 percent in the early 1970s to less than 30 percent going into the 1980s. Further, they tried to supplant income from the struggling fiber division with higher margin products like paint coatings, non-commodity chemicals, and pharmaceuticals. Akzo executives made another significant move toward reorganizing their operations in 1982 when they appointed Arnout A. Loudon chief executive of the company. Loudon, a 46-year-old attorney turned executive, had demonstrated an impressive financial acumen in turning around Akzo subsidiaries in France and Brazil. Upon assuming leadership of the company, Loudon initiated an aggressive restructuring strategy designed to stabilize Akzo's unwieldy balance sheet and to ensure long-term profitability.

Among other maneuvers, Loudon further reduced Akzo's man-made fibers emphasis to just 20 percent of corporate revenues and boosted its position in coatings and health care related industries. He also decentralized decision-making and eliminated management layers. Furthermore, Loudon launched an ambitious acquisition drive in 1984 chiefly designed to increase Akzo's presence in the important U.S. market and to diversify into higher profit-margin chemical businesses. Between 1984 and 1990, Akzo purchased more than 30 companies, most of which were located in the United States, at a cost of about US $1.8 billion. The units were primarily involved in the production of salt, chemicals, and pharmaceuticals. To fund these purchases, Loudon simultaneously jettisoned poorly performing assets which were worth more than US $1.5 billion. By the end of the acquisition campaign, Akzo had emerged as the leading global producer of salt and peroxides and one of the top 20 chemical companies in the world. 1990 sales approached $10 billion as profits surged.

During the early 1990s, Akzo concentrated on improving efficiency. Indeed, compared to chemical companies in Japan and the United States, its operations were bloated, chiefly due to restrictive government and organized-labor regulations in Europe. Gradual improvements in efficiency led to marked success in key divisions such as pharmaceuticals, which captured a key position in the reproductive medicine market. Its most notable product was Desogen, the top-selling birth control formula in the world. Similarly, Akzo enjoyed steady market share gains in some of its paints and coatings divisions. The net result was that Akzo sustained steady sales and profits throughout the early 1990s, despite a global economic downturn.

Going into the mid-1990s, Akzo continued to reduce its emphasis on low-profit commodities like salt and fibers and to boost its dependence on coatings and specialty chemicals. To that end, Akzo consummated a pivotal merger early in 1994 with Nobel Industries of Sweden. Nobel was a major contender in global paint, coatings, and specialty chemical industries. It operated subsidiaries worldwide and enjoyed a relatively strong position in U.S. markets. The company that resulted--Akzo Nobel N.V.--elevated Akzo's revenue figure by more than 25 percent, gave the new company a leadership role in the global paints and coatings industry, and bolstered the former Akzo's stance in the European and U.S. markets. The former Nobel Industries benefitted from economies of scale offered by Akzo, such as inexpensive access to raw materials like salt and chlorates.

Akzo's merger partner Nobel Industries was founded in 1864 by Alfred Nobel, the progenitor of the Nobel Peace prize. Nobel was born in 1833 into a Swedish family that claimed heritage to the 17th-century Swedish prodigy Olaf Rudbeck. Alfred Nobel's father, Immanuel, was a self-educated inventor with an interest in explosives. An unsuccessful businessman, Immanuel was forced to file for bankruptcy in 1832 after the family's home burned down. In 1837, Immanuel moved to Russia, leaving his family behind, to start a new business. There, he invented an explosive device for which demand gradually increased. By 1842, Immanuel had achieved modest success with his invention, and he sent for his family. Alfred's exposure to that environment, combined with his natural interest in chemistry, prompted him to form his own company in 1864 called Nitroglycerin AB.

Alfred's key invention was a process of making nitroglycerine that did not explode during production and handling. However, the perfection of this technique came at a great personal cost for Nobel in that an explosion killed Alfred's brother and four other workers during the testing process. This breakthrough led to Nobel's development of dynamite in 1866, which combined nitroglycerine and an absorbent earthy substance. Nobel went on to create blasting gelatin and smokeless powder, and eventually claimed 350 patents. In an effort to overcome opposition from established gunpowder manufacturers and other competitors, Nobel and several associates formed the Nobel Dynamite Trust in 1886. This cartel eventually dominated five continents and Nobel dynamite factories dotted the globe.

A surprising turn of events occurred for Nobel in 1888 when his brother, Ludwig, died and a local French newspaper accidentally reported Alfred's death instead. To his dismay, Alfred read his own obituary, in which he was described as the inventor of dynamite and the "merchant of death," despite the fact that most of his explosives were used in nonmilitary applications. This experience motivated Nobel to demonstrate his true intent. Thus, when he died in 1896, Alfred directed that his entire fortune be entrusted to the Norwegian parliament and distributed annually as a reward to individuals who "shall have conferred the greatest benefit on mankind." Subsequently, the Nobel Foundation was established and the first prize was awarded in 1901.

After his death, Nobel's conglomeration of businesses was divided into various corporations. Nobel's Swedish companies evolved into two separate organizations. His original company, Nitroglycerin AB, continued to make explosives. Its name was changed to Nitro Nobel in 1965 before it was bought out by a chemical group controlled by the prominent Wallenberg family in 1978. The resultant organization was called KemaNobel. The other segment of the Swedish Nobel operations became Bofors, a manufacturer of munitions. In 1982, Erik Penser, a young Swedish stock broker, engineered the purchase of Bofors. Two years later, he purchased KemaNobel, reuniting the two divisions in a company he called Nobel Industries.

In 1986, Penser's company won a five-year, $1.2 billion contract to supply field artillery to the Indian government. Business analysts lauded the deal as one of the largest orders ever secured by a Swedish company until it was discovered that Penser may have made illegal, covert payments of $4.5 million into a secret Swiss bank account to get the contract. To make matters worse, it was discovered in 1987 that Nobel Industries had illegally shipped arms to Iran, Iraq, and other countries not sanctioned for arms trade by the Swedish government. Meanwhile, Nobel's U.S. chemical subsidiary, Bofors Nobel Inc., filed for bankruptcy in 1985, largely because the U.S. Department of Natural Resources had sued the division for $15 million in environmental clean-up costs. Initially, Bofors Nobel had agreed to pay the clean up expenses, but once the higher-than-expected costs accrued, the division elected to file for bankruptcy instead.

Despite Nobel Industries's setbacks, Akzo executives viewed the company as a potential asset to their organization. In 1994, Akzo completed the merger of Nobel's six business groups, making Akzo Nobel one of the ten largest chemical companies in the world. Shortly before the merger, Akzo had implemented a sweeping reorganization drive to dismantle the company's five major business divisions and recreate them in four new groups--chemical, fibers, coatings, and pharmaceuticals. Akzo continued to develop its U.S. markets aggressively, while it worked simultaneously to penetrate Asian and South American markets. Going into the mid-1990s, Akzo had invested about 33 percent of its resources in the Netherlands, 20 percent in Germany, and 22 percent in the United States, with much of its remaining investments scattered throughout Europe. Akzo Nobel's 1994 sales rose slightly to about US $11.5 billion, roughly five percent of which was netted as income. Company executives continued to view long-term growth as resulting from ongoing geographic and market diversification as well as improved operational efficiency.

Principal Subsidiaries: Akzo Nobel Chemicals B.V. (Netherlands); Akzo Nobel Coatings B.V. (Netherlands); Akzo Nobel Fibers B.V. (Netherlands); Organon Teknika N.V. (Belgium).





Further Reading:


"Akzo Nobel Combination Look Like a Perfect Fit," Chemical Marketing Reporter, April 18, 1994, p. 8.
Hunter, David, and Lyn Tattum, "Akzo Shapes Up with a New Organization," Chemical Week, October 27, 1993, p. 26.
Mendes, Joshua, "A New, Improved Chemical Stock at Half-Price," Fortune, July 2, 1990, p. 28.
Moskowitz, Milton, The Global Marketplace, New York: Macmillan, 1987.
Reier, Sharon, "Master of the Hunt: While Most of Europe's Chemical Industry is Hurting, Akzo Surges Ahead," Financial World, January 5, 1993, p. 26.
Sommers, Nick, "Akzo Nobel Launches New Generic Pharmaceutical Firm," Business Wire, September 6, 1994.
Srodes, James, "Dutch Treat," Financial World, January 9, 1990, p. 32.

Source: International Directory of Company Histories, Vol. 13. St. James Press, 1996.




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