Akzo Nobel, today moved a step closer to capturing the Dulux paints maker, ICI, when the UK company agreed to open its books to its Dutch suitor after the latter raised the amount it might be prepared to offer to £8bn.
ICI, which rebuffed earlier approaches from the Dutch chemicals company, said it would now allow "certain limited due diligence" following Akzo's decision to raise the level of a possible offer to 670p a share. It also pledged to maintain the interim dividend announced by ICI last week while offering a second dividend of up to 5p for the rest of the year.
In June Akzo indicated it was prepared to offer 600p then raised that to 650p a share, a level ICI still regarded as too low.
Akzo is helping to finance the possible acquisition through a deal with the German consumer products group, Henkel. The latter has agreed to pay £2.7bn for ICI's National Starch adhesives and electronic materials businesses if Akzo successfully bids for the UK company.
The Takeover Panel has given the Dutch company until Thursday to table a formal offer, though ICI can ask for an extension if it believes Akzo is close to finalising a bid. Yesterday ICI said it expected the due diligence to be completed within "a few days"; suggesting it is hopeful it can be completed within the original Takeover Panel timetable.
Henkel's agreement to buy the National Starch business needs the backing of its shareholder committee while Akzo will have to put any bid terms to its own shareholders. Some analysts believe their approval is by no means a foregone conclusion in the light of the price it has indicated it is prepared to pay.
"The biggest hurdle remains approval of the deal by Akzo shareholders," according to Collins Stewart analyst James Knight. "We estimate the chances are better than evens, but difficult to call."
Goldman Sachs analysts said they believed there could be shareholder concerns over the price and warned that competition issues could mean the deal would take six months to complete.
Akzo is not short of the cash to buy ICI, having agreed to sell the biosciences business, Organon, to Schering-Plough for 11bn (£7.5bn) this year. However some analysts have suggested that unless Akzo can spend the money from the Organon sale it could itself become a bid target.
Analysts said yesterday that Akzo's success in winning over its own shareholders could hinge on the level of synergies it believes it could create if it took over ICI.
"More synergies can also make the bid price more acceptable to shareholders," said Jan Van Den Bosshe, an analyst at asset management company Petercam.
However ICI's willingness to open its books indicates that if Akzo does come through with a 670p-a-share offer, the ICI board is likely to give its blessing unless the Dutch company adds last minute conditions which are deemed unacceptable.
Last night ICI's shares closed up 3p at 634.5p, well below the indicated offer price, suggesting some uncertainty about the prospects of a bid going through.
If Akzo does win ICI it will face further disposals beyond the planned sales to Henkel. Akzo owns Crown paints and the acquisition of Dulux is likely to attract the attention of competition authorities. Yesterday Akzo would not be drawn on the future of the paints business if it wins ICI.
Akzo could yet face a rival bidder with Dow Chemical of the US and Germany's BASF tipped as possible candidates.
Yesterday the Dutch company said it had been able to improve its indicated terms after talks with ICI and Henkel. The German company, which has three main business areas - home care, personal care and adhesives - said it believed the acquisition of ICI's businesses would generate synergies of between 240m and 260m a year and would mean that adhesives would account for around half its sales.