AkzoNobel's planned merger of equals with Axalta is facing scrutiny following a €7.5bn cash offer from Nippon Paint for Akzo's paints division. Despite Akzo rebuffing previous bids, the Nippon offer warrants consideration. Akzo's enterprise value has remained stagnant since the merger announcement, suggesting investors doubt the tie-up's potential for significant value creation. Shareholders are set to vote on the merger on August 5.

The €7.5bn proposal for Akzo's paints division appears attractive. If accepted, and assuming the remaining coatings business is valued similarly to peer PPG, Akzo shareholders could be approximately 30 per cent better off. This scenario could still allow for a deal with Axalta, retaining most of the anticipated $600mn in cost savings from the original merger, with Akzo remaining the larger partner.

Akzo's resistance to these offers is puzzling. The company's board might believe its current market capitalization doesn't reflect the merger's future value. Other chemical sector mergers, such as Solstice Advanced Materials with Element Solutions and Olin with Huntsman, have also received lukewarm investor responses. It's possible Akzo is employing a negotiating tactic, hoping for a higher bid, as other paint businesses have sold at higher multiples than Nippon's implied valuation. However, prioritizing negotiation over immediate premiums may not be in shareholders' best interests.