Change & Investment - An Expected Increase in Future Revenues
April 27th, 2008 |Another example of Company changes comes from AKZO Nobel.
This company was “a conglomerate, a residue of a previous economic era when people thought that the different business parts would positively influence the whole company results and that investigations for one business unit might give positive results for other units. That was hardly the case. Today those conglomerates are being split-up again… Innovation is a uncertain business. Of ten project, only two or three are “bingo,” while two or three costs a lot of money. A broad portfolio is than less risky”. (1)
Akzo’s business portfolio was initially focused on pharmaceuticals (with Organon as a leading company for birth control pills) chemicals and coatings. What happened over the years was that when one business unit showed a mayor growth, some other division’s performance was below expectations. And the overall growth didn’t show confidence that the market required.
“2007 - the year of transformation: Akzo Nobel divested its pharmaceutical activities (Organon Bio Sciences) to schering-Plough and acquired Imperial Chemical Industries plc (ICI) to create one of the world’s foremost industrial companies. We’re bigger, stronger, more focused.” According to the annual report of 2007.
Akzo’s business is from origin dedicated to paint. In 1969 two companies merge: the “Algemene Kunstzijde Unie,” A dutch german manufacturer of chemical fibers and “Koninklijke Zout Organon,” active in chemical, medicine and paint. The new merger is called Akzo. IN 1994 the company merges with the Swedish company “Nobel.” In 1998 Akzo Nobel acquires the British “Courtaulds” a large producer of coatings and fibers. Akzo Nobel than belongs to the largest producers of coatings in the world. The fiber Business units are sold. With the recent acquisition of ICI only two
business units coatings and chemicals are left.(2)
Existing investors are now in facing a new investment. The old Akzo Nobel with historical under performance versus the new focused company, but with no historical track record. In the market the shares of AKZO outperform the index for the moment.
But what the future will bring is uncertain.
Similar changes have taken place by the company International-Muller. A conglomerate of various business dedicated to distribution and technology. Now the new company changed it’s name to IMTECH and is year after year outperforming the index.
Sometimes the name of the company changes in case of Akzo Nobel and the merger with ICI it remained the same.
Investors are now dealing with a new company, with new (future) earnings expectations. Only the long-term investor will have to wait and evaluate whether the change will realy be reflected in the future earnings. The market seems to have accepted the change already. The stock is currently outperforming the index.
Hans Bool
(1) - http://www.intermediair.nl/artikel.jsp?id=1032282
(2) - http://www2.akzonobel.nl/nl/about/history.asp
Hans Bool writes articles about management, culture and change. If you are interested to read or experience more about these topics have a look at: Astor White
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