Akzo Nobel N.V. (AKU1.F) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Axalta and AkzoNobel conference call. [Operator Instructions] As a reminder, this call is being recorded, and a press release and slide presentation regarding today's news are available on the Investor Relations section of each company's website. I would also like to remind everyone that all statements made during the call that relate to future results and events, including the proposed merger, are forward-looking statements that are based on current expectations. Actual results and events could differ materially from those discussed here. Please refer to the information on the disclaimer slide in the presentation as well as the additional information contained in the regulatory filings for both companies. I'll now turn the call over to Rakesh Sachdev, Chair of the Axalta Board of Directors.

Thank you. Welcome, everybody, and thanks for joining us. I'm Rakesh Sachdev, Chair of Axalta, and I'm delighted to open today's call also on behalf of Ben Noteboom, Chair of the Supervisory Board of AkzoNobel, and to welcome you to this analyst and investor presentation on the proposed merger of equals between AkzoNobel and Axalta. This strategic combination will create a global coatings leader with $17 billion in revenue and an enterprise value of $25 billion. Together, we will drive significant value for our stakeholders, including shareholders, customers, employees and the communities where we operate. On today's call, Greg Poux-Guillaume, AkzoNobel's CEO; and Chris Villavarayan, Axalta's CEO, will walk through the transaction details and why we are all very confident in the value creation potential of this combination. The history of each of our companies dates back well over a century. Greg brings deep global leadership experience in industrials and has a strong track record of operational excellence. Chris is widely recognized for driving performance, innovation and customer-focused growth. Together, they will lead a world-class team as we bring these 2 great businesses together. With that, I'll turn over to Greg on Slide 5 to kick us off with a deeper dive into the rationale for this transaction. Greg?

Thank you, Rakesh, and good morning, good afternoon to everyone. Today truly marks an important step forward for both AkzoNobel and Axalta, a moment when 2 outstanding organizations come together to shape the future of our industry. By joining forces, we're creating a global coatings leader with $17 billion in revenue and enterprise value of about $25 billion, a market leader with the scale, the capabilities and the ambition to set new benchmarks in the paints and coatings industry. This is a compelling combination. It delivers immediate benefits while opening the door to meaningful upside in the years ahead. We see clear actionable opportunities for cost and operational synergies of $600 million, opportunities that we have specifically identified and therefore, are within our control. But this merger is about far more than synergies. It's rooted in deep and clear industrial logic. Together, we're creating a premier global coatings company with the portfolios, the technologies and the talent to lead our industry. AkzoNobel and Axalta bring highly complementary strengths, leadership positions across key end markets, world-class innovation platforms and a shared commitment to serving customers with excellence. This combination brings those strengths together in a way that is simply stronger than either of our companies could achieve alone. With greater scale, broader commercial reach and enhanced capabilities, we will be better positioned to serve our customers, deliver superior value to our shareholders and invest in innovation and growth. Both companies have grown to become global leaders, AkzoNobel in Powder and Aerospace and Deco and Marine Protective; Axalta in Refinish and Mobility by consistently investing in technology and long-standing customer relationships. Together, we will build on that heritage. Our focus will be on driving innovation that delivers tangible benefits to customers. This merger brings together 2 high-performing organizations with strong financial foundations. The combined company will have robust cash flow generation, providing the flexibility to invest in innovation and growth while supporting disciplined capital allocation and a clear commitment to maintaining an investment-grade rating. Over the next few slides, Chris and I will show why this combination is such a powerful opportunity and how it positions us to lead the next chapter of value creation in the global paints and coatings industry. Let's now turn to Slide 6, where we will walk you through the elements of the transaction structure. This is an all-stock merger of equals at no premium, with a special cash dividend to be paid to AkzoNobel shareholders equal to EUR 2.5 billion, minus any regular annual or interim dividends paid to AkzoNobel shareholders in 2026. So contrary to some of the -- what some of the more mathematically challenged members of the investment community wrote this morning who disregard the EUR 2.5 billion of special dividend. If you account for the special dividend to Akzo shareholders, you can see that this is a no-premium merger of equals. Under the terms of the agreement, Axalta shareholders will receive AkzoNobel shares, so that AkzoNobel shareholders will own 55% of the combined company and Axalta shareholders will own 45% of the company. The combined group's strong cash flow generation, together with the realization of identified synergies, will support our clear strategic capital allocation priorities. We will remain firmly committed to strong shareholder returns, including dividends, while maintaining an investment-grade credit rating with a target leverage ratio between 2 and 2.5x net debt to EBITDA. This transaction has received unanimous support from both our Boards, subject to shareholder approvals and customary regulatory clearances, we expect the transaction to close in late 2026 to early 2027. Following completion, the combined company will be solely listed on the New York Stock Exchange and domiciled in the Netherlands with dual headquarters in Amsterdam and Philadelphia. Turning to Slide 7. For more than 1.5 cent, both AkzoNobel and Axalta, have shown resilience in successfully weathering industry shifts and led technological innovation to build well-established portfolios and brands. This merger brings together the very best of our 2 cultures, talented people, technical expertise and a shared passion for serving customers at the highest level. Both organizations have long recognized that sustainability and innovation are the engines on long-term value creation. Across our combined 91 R&D centers, we are united in our drive to develop solutions that help customers improve performance, productivity and environmental footprints. Together, we will serve an exceptionally broad set of end markets from Powder, Industrials, Aerospace and Deco to Refinish and automotive with leading positions in our core segments. By combining our technologies, our talent and our customer relationships, we will be able to offer more depth and innovation than ever before. This is about creating a partner of choice with unmatched technical service and global reach. Turning now to Slide 8. You can see clearly how the combination of AkzoNobel and Axalta reshapes the competitive landscape. The combination of AkzoNobel and Axalta immediately positions us as the #2 global coatings company with roughly $17 billion of revenue. Our scale, combined with a well-balanced mix of coatings, gives us one of the most diversified portfolios in the industry. Compared to peers, the strength of our combined platform is clear. We gained the reach and the breadth, both technologically and commercially to lead in delivering value for our customers across our core markets. This is not just about size, it's about creating a stronger, more competitive company with the capabilities to drive sustained growth and value creation. I'll now hand over to Chris to walk you through the details behind our combined strength. Chris?

Thank you, Greg. Moving -- bringing AkzoNobel and Axalta together is about unlocking value creation, accelerating sustainable growth and creating a stronger, more diversified leader in coating solutions, as Greg described. On Slide 9, you will see how our best-in-class brands complement each other. Together, we will have first-rate franchises across 7 end markets, creating a balanced portfolio. Our combined global customers will gain access to an unmatched portfolio of coating solutions from the homes and cities where we live and work to the vehicles that transport us and our goods across land, sea and air. Our technologies will continue to meet the evolving needs of our customers worldwide. Our portfolio will be more diversified both in geography and by application and be differentiated by the breadth of solutions across approximately 100 well-known brands. Turning to Slide 10. This combination meaningfully expands our geographic scale and strengthens our commercial reach. Together, we'll have a global footprint spanning approximately 173 manufacturing sites and 91 R&D facilities worldwide. This enhanced footprint unlocks meaningful value and enables us to accelerate innovation, optimize our cost structure and expand into attractive markets. Individually, we were strong. Together, we're even stronger, equipped with the resources and capabilities to shape the future of our industry. By increasing our local presence in key geographies, we expect both AkzoNobel and Axalta's customers will benefit from the greater value we can deliver as one team through deeper channel access, broader product support and customer relationships. Slide 11 captures one of the most powerful aspects of this merger, the depth of history, expertise and innovation that both companies bring. Each of our organizations have been industry leaders for more than a century, and we are united by a shared commitment to R&D and strong pipeline of solutions. Together, we will invest approximately $400 million in combined annual R&D spend, supported by 91 global R&D centers for local customer needs, approximately 4,200 research fellows, scientists and engineers and approximately 3,200 granted and pending patent applications. This scale and increased talent pool gives us the ability to accelerate innovation and deliver advanced differentiated products across all end markets. Importantly, sustainability-driven innovation remains core to everything we do, ensuring our technologies meet customer needs today while shaping a more sustainable future. We're not just merging 2 companies, we're merging 2 innovation engines with a proven track record of shaping the industry. Turning to Slide 12. This transaction presents a compelling opportunity to deliver meaningful incremental value to our shareholders that we could not deliver alone. By combining AkzoNobel and Axalta, we expect to unlock substantial synergy potential, further strengthening our financial profile. We anticipate that the combination will generate run rate synergies of approximately $600 million, 90% of which is expected to be achieved within the first 3 years following the close of the transaction. Their targeted synergies primarily stem from SG&A savings as well as streamlined procurement functions, footprint optimization and improved supply chain management. Importantly, we believe these synergies will translate into tangible benefits such as higher margins, stronger cash flow and significant flexibility to support strategic and capital allocation priorities. Both organizations have a strong track record of focused execution, giving us confidence in our ability to deliver. For stakeholders, this means a more resilient, diversified business with enhanced profitability and long-term growth potential. Simply put, we believe this combination positions us to create long-term value, and we will have a clear line of sight on how to make this happen. As you can see from Slide 13, we expect to have a highly attractive financial profile with strong adjusted EBITDA margins approaching 20% and substantial cash flow. With revenues of approximately $17 billion, adjusted EBITDA of $3.3 billion and pro forma adjusted free cash flow of $1.5 billion, we will be among the top in our industry in terms of profitability and cash conversion. Putting it all together on Slide 14, this combination is unique -- as a unique opportunity to combine 2 iconic companies that we are confident will deliver superior value creation over the long term. This combined company's strong cash flow generation potential is expected to enable consistent capital returns through a regular dividend and the capacity to reinvest in innovation and growth. Our net leverage is expected to be in the range of 2 to 2.5x, and the combined company is expected to be investment-grade credit rating. For shareholders, this means a stronger, more diversified business with enhanced profitability and the financial flexibility to invest in long-term value creation. Before I move ahead, I want to take this moment to reflect on this monumental announcement. Over the past few years, Axalta has successfully transformed its culture, enhancing engagement, driving innovation and delivering operational efficiency across the organization. Our focused execution has been outstanding, and I'm immensely proud of the bold progress we have made. Looking forward, I'm excited to continue this journey alongside Greg and AkzoNobel. As outlined on Slide 15, our stronger pro forma financial profile will underpin our ability to drive growth and create long-term value. This merger is more about the combination of 2 companies. It's about creating a stronger, more resilient coating leader that delivers for our shareholders, customers and employees alike. We have outlined the financial strength and the innovation potential and the global reach that will define our future. I'm confident in our ability to execute and deliver the exceptional value ahead. With that, I'll turn it back to Greg.

Thanks, Chris. Let's turn to Slide 16 to discuss governance and leadership. We've designed a structure that is both balanced and combines the best experience needed to manage the combined company. The current Chair of Axalta, Rakesh Sachdev, will chair the Board with the current Chairman of AkzoNobel Supervisory Board, Ben Noteboom, serving as Vice Chair. I'll serve as CEO with Chris as Deputy CEO, a leadership model that reflects the collaboration at the heart of this merger of equals. The Board will also include independent directors to ensure a strong oversight and an external perspective. Our approach to leadership is straightforward, ensure continuity where it matters most, make decisions anchored firmly in the long-term interest of the combined company, and hold ourselves accountable for delivering on the commitments we're making today. Both organizations bring deep experience in leading large integrations and transformations. We know this will require focus and discipline, and we're fully prepared to address challenges head on and execute with precision. Finally, on Slide 17, let me touch on what this merger means for our stakeholders. For our employees, this creates new opportunities across a larger, more diverse organization. And every major integration has seen new career paths opened up, sometimes in roles or geographies that people never imagined. At the same time, we recognize that change brings uncertainty. Our commitment is to communicate early and consistently so people know where they stand. For shareholders, this combination is fundamentally about value creation, $600 million of identified cost synergies, superior margins, a stronger balance sheet with financial flexibility. For our customers, the merger brings a broader portfolio and deeper technical expertise and stronger local support, all reinforced by global scale and a sharp focus on partnership and service. For our suppliers, we intend to build on existing strong relationships and use our combined reach to create new avenues for joint growth and innovation. And on sustainability and innovation, both companies have made real progress. We will continue pushing for practical, measurable improvements that help stakeholders meet their goals while strengthening our own long-term competitiveness. On those words, that wraps up the presentation part of this meeting, and we're now happy to take your questions. I'll work with the moderator to dispatch them so you hear from all of us. Go ahead.

[Operator Instructions] And the first question today comes from the line of Laurent Favre with BNP Paribas.

The first question is on synergies. And I was, I guess, wondering if you could talk about the range of scenarios around the $600 million target. Can you help us understand how you derive the number? Is it bottom up or top down? But also, I guess, importantly, what is the sensitivity of that number to what may happen with the antitrust review? So is it highly sensitive to areas where you do have overlaps and therefore, there's risk around antitrust? And then the second question, if I can, from a leadership standpoint, so you both arrived in the coatings industry at the same time. And I believe neither of you is particularly married to the industry. So can you help us understand the game plan on leadership post closing and on synergy capture has come through? Do you already have an agreement on who stays for how long and ultimately, who runs the show?

Yes. Thank you. Laurent, I'll take the first question, and Chris will take the second on leadership. I'd like to start by saying that this is a merger between an American company and a Dutch company. And the first question is, a French guy answering the question of a French guy, which feels strange, but we'll go with that anyway. Synergies. The $600 million is something we worked on together. You know, Laurent, because you've been covering us for a long time that AkzoNobel and Axalta have considered the opportunity of a merger multiple times in the past. Almost every time we had those discussions, we did a joint synergy study. When we reinitiated these discussions recently, we undertook another joint synergy study. So we've done a lot of work on this. The work has been bottom-up in the sense that we've got teams from both businesses, including people from the segments of both businesses that contributed to this analysis. So it's a solid and surprisingly granular for a merger of 2 listed company, surprisingly granular plan. And we feel confident that this is something we can execute. And Chris and I have done this before. Maarten de Vries, our CFO, also has been in similar situations as is Carl. So there's a team that knows how to deliver these things, and there's enough granularity and bottom-up elements that we feel we can hang our hat on this. And then your question on antitrust. I mean, first of all, it's too early to speculate on any potential remedies. You have to keep in mind, this is a really fragmented industry where there's ample competition. But if you look at the synergies and you look at the breakdown that's in the presentation, the SG&A synergies mostly are not significantly impacted by remedies. The manufacturing and supply chain synergies are linked to the businesses. And procurement is a specific number linked to specific situations by commodity that we looked at. So rest assured that there's a lot of work that went behind us, and these are numbers that we feel strongly we can deliver. And then on leadership, Chris, do you want to go ahead?

Sure, absolutely. And Laurent, thanks for the question. I think to your point, Greg and I came here -- came into the business at the same time. Obviously, Greg, from my perspective, the way we looked at this is to have a balanced leadership, both from a Board perspective as well as a leadership perspective. And when it came to the leadership perspective, it's specific to the CEO. Obviously, Greg has been running a larger organization. If you think about AkzoNobel with 33,000 employees, and Axalta. It's -- I think Greg has spent the last 2 years learning that business. I've obviously spent my time learning this business. But what is complementary across the 2 businesses, we obviously have the 3 businesses when you look at Refinish. But Greg on his side also has Aerospace, has Marine. There are more businesses as well as Deco. And I believe that gives him the opportunity to also drive a strategic initiative here. And that is certainly the focus of the company going forward. If you look at the 7 end markets, obviously, Greg has more and that it made sense that this would be -- probably makes sense for Greg to lead this. I'm supporting from -- as I look forward from the synergy standpoint. And as Greg pointed out, both of us are very, very good at this. Both our teams are exceptional. It's built into our DNA. It's something that, as you can see in our -- both our companies' performance in the last 2 years, we've both done an exceptional job. And as Greg pointed out, we're supremely confident in achieving this. Even if we look at -- as Greg pointed out, on the materials bucket, that is about $6 billion. So there is ample opportunity, and we truly believe that this is something that we can execute and deliver on.

The next question is from the line of Christopher Parkinson with Wolfe Research.

This is Harris Fein on for Chris. Congratulations. Just maybe if we could spend a minute thinking about the capital structure for the combined entity. Will there be any incremental debt to fund the EUR 2.5 billion special dividend? That's my first question.

Yes. Maarten de Vries, the AkzoNobel CFO, who's sitting next to me, will take that one, and Carl can jump in afterwards if he wants to add anything. Maarten?

Yes. So thanks for the question. If you look at the special dividend of EUR 2.5 billion, which is, in fact, a combination of the regular dividends in 2026 as well as special dividends. Financing will be partly from available cash, but also from additional -- taking additional debt. But we don't see any issue to be able to handle that.

Carl, do you want to add anything?

Yes. Thanks, Greg. Harris, yes, as Maarten outlined, I think the combined companies and the focus and the strategy of ensuring we're investment grade will be the #1 objective as we move forward. So we -- with the amount of free cash flow generation here over the next 12 months plus, and as Maarten articulated, we feel very comfortable with being able to deliver on the target range of leverage as we move forward.

And I'd add to that. Keep in mind that we -- AkzoNobel, we just sold our Indian businesses. We got EUR 900 million of net proceeds. The deal is closing. I don't want to put pressure on our team, but like next week or the week after. And we've suspended the share buyback that we had planned associated to those proceeds. So the combination of the proceeds from the Indian disposal, the additional free cash flow we'll generate from now to closing, we see no issue with that special dividend. Next part of your question, Harris?

Understood. Yes. And you mentioned a few times broader scale and commercial reach. Just curious if you're contemplating any potential for revenue synergies on either a regional or a customer basis as part of the combination. It would be good to hear your thoughts on the potential there?

Yes. Chris and I share the view, and I'll start, and Chris will jump in. Chris and I share the view that there are significant revenue synergies associated to the transaction. We'll have unrivaled global coverage. We've got synergistic product ranges. There's all sorts of things that we can do, but neither of us is of the belief that you should bake these things into the shareholder presentation as you announce a merger like this. We want to hang our hat on stuff which is mechanical. The cost synergies are mechanical. These are things that we will extract regardless of what happens in the market and the revenue synergies are the cherry on top. Chris, do you want to add anything?

Yes. No, that's perfect. I think well said, Greg. For us, there's -- obviously, when we look at geographical scale and what we can do from the end markets, with -- we have teams that are complementary in many regions that can carry other product lines or adjacencies. So there's probably significant upside on revenue synergies. But as Greg pointed out, we don't have any of that baked up -- baked into our models here.

The next question comes from the line of James Hooper with Bernstein.

Congratulations, guys. I've just got a couple more from me. The first question is a simple one. Why now? Obviously, they've been on and off this merger for 10 years or so in various management teams. And then the second question is a bit more going into the sort of cost synergy side of things. I mean, Greg, you spoke on Bloomberg TV this morning about U.S. governance and keeping the domicile. And you mentioned that there wasn't so many -- a lot of the SG&A synergies will be independent of antitrust. So to what extent is this -- when you were underwriting the synergies, is this just a kind of continuation of cost cutting that you've already been doing and this is just a kind of logical extension with perhaps a different domicile?

Yes. Thanks, James. I'll take both questions, although I'll ping the why now question also back to Chris, so you can check whether we believe we have the same answer. The first part, I mean, I'll start with your second question, the cost synergies it's -- I think you're talking about 2 different things. You're talking about the cost synergies and you're talking about the governance issues. The governance issues are -- we're making this as much of a U.S. company as you can be while being Dutch domiciled. Dutch domicile is attractive. Companies that want to domicile in Europe, usually, they look either at the Netherlands or at Ireland. And our friends at Axalta can attest to that. So -- but at the same time, the coating space is led by U.S. investors. If you take Akzo today, 62% of our shares are in U.S. hands. So U.S. listing really makes a lot of sense. And to make this a U.S. company, we have to make it as close to the governance of a U.S. company as we can be. And some of that means having a 1-tier board system rather than the historical Dutch 2-tier board system. And it also means dismantling the shifting that investors intensely dislike. This foundation that sits at the top of the company that some of you guys see as a poison pill or anticapitalistic. So all of that is going away. It's a 1-tier board system. It's pretty much a U.S. company as an NV. And we think there's a lot of value to that, including in how that company is going to be rerated. Now your question on the cost synergies. The cost synergies are, as I said, they're solid, the $600 million. I mean some of them clearly would be impacted by potential remedies. But my point has been that a lot of the synergies that you see on that page -- the details then are not directly correlated to whether we have to sell anything. The corporate stuff, for example, is regardless of whether the scope is adjusted a little bit or not, the corporate stuff is going to happen, and there's only going to be one team and there's only going to be one overhead structure. So the procurement stuff is also largely going to happen and adjusted for a little bit of scope potentially. But once again, it's too early to speculate on that. The important part of your question, is this more of the same? And the answer is it isn't because if you look at what Akzo is doing, whether it's on our industrial transformation or on our functional cuts, the functional cuts are essentially already done. There's going to be a little bit more in 2026 because why stop now. And the industrial transformation, the factory rationalization, we said that program would be fully completed at the end of 2026. So essentially, as the transaction closes, we will have delivered on the things that we committed to as AkzoNobel and the cost synergies that you're seeing are really the consequence of putting the 2 companies together and using the best of both worlds and relying on maximizing the value out of the assets that we have and getting rid of these surplus assets. So it's really straightforward. It's an addition. It's not a substitution. Chris, you want to give flavor on why now?

Sure, absolutely. I think, James, simply put, and you asked the question on, hey, over the last 10 years, I personally believe or I truly believe there is no better platform. I think these 2 portfolios were meant to be together for the last 10 years. And I think, if you look at the compelling ability to create value, when you look at the synergies, you look at the rerate potential, this was a deal that needed to happen. The strategic rationale and the breadth of the portfolio that this brings together is bar none better than most that's out there or in my perspective, better than all that's out there. And as I look at this going forward, the reason that this happened was both of us were able to work together to make this balanced, and really start both of us coming in new into the business, I think, helped. and really pulled it together. And it's also a true complement to both Boards of coming together and making this possible. I think right now, it was just the perfect time because we had the right mindset from a Board perspective and a leadership perspective.

The next question will be coming from the line of Matthew DeYoe with Bank of America.

Chris, U.S. investors would probably say size of sales is not an indication of value, and you've clearly done an excellent job lifting margins. So with that in mind, my first question is, what even is a Deputy CEO? And how will the 2 of you come to a conclusion if you fundamentally disagree on a solution?

Well, I think it's -- what Greg and I have worked on is what each of us are going to take as our responsibilities going forward. What I'm going to be focused on is really putting together and driving the synergy book and really driving the $600 million and coming up with the story and the implementation plans and have it ready to go on day 1. And it's something that we're going to work together. Obviously, to James' question -- previous question on why now, we were able to work together to get this deal done. So I believe that we will certainly work together to develop and come up with the strategies around the synergy savings. It's -- as I've said in the previous questions, it is built into both our DNAs. I think we're exceptional, not only from our perspective, but from our team's perspective, on driving cost. And so I think as Greg pointed out in the last question, I think we know the exact buckets. We know the work we need to do. We will certainly develop the strategy. I'll help him put that together. And so the focus is on accomplishing that and it's truly in both our benefits. So I don't think that there's going to be an issue that we're going to have too many disagreements on that side. In fact, I think knowing Greg and I will be pushing to higher numbers.

Chris and I are aligned. We speak the same language. And Matthew, we don't know each other well, but I don't want to leave you with the impression that Maarten and I at Akzo don't know what a U.S. investor is. I led the disposal of Alstom to GE and the integration of the Alstom businesses into GE. And Maarten led the disposal of TNT to FedEx and the integration. So we've done this before, and we'll do our best to speak proper English and make sure you guys understand this, but we understand what the challenge is and what the opportunity is.

Yes, Greg, I didn't mean to cast aside on you more.

No, I'm kidding, Matthew.

And what has been impressive with Chris. But look, I appreciate your answer. And I also appreciate you want to hang your hat on what's mechanical, but I think both sides of the pond are pretty frustrated by like a lack of organic growth across both franchises. And I know there's a lot of macro to blame here, but also creating a more diversified organization doesn't really mean higher value or growth. So like as you sat in your offices kind of pontificating sales synergies, like what did you come up with? What -- maybe you can expand a little bit or if it's really just too premature, it would be helpful to kind of understand that.

Greg, do you want to take that, and I'll follow up after you?

Yes. Sure. I'll start. And Matthew, it's a really fair question. If you look at this industry, the last few years have been really challenging for growth. The market has gone sideways at best. It doesn't mean that this is a long-term trend because if you look at many of our end markets, the coatings demand is still below 2019 levels. So at some point, there's going to be some type of recovery. But there's been areas that have been at times a little bit difficult. Refinish has been difficult this year, for example, but these things come and go. What we see is we see the strength of the combined portfolio. We see the value of the combined geographical coverage. At Akzo, if you look at our coverage premerger, we are actually under-indexed in the U.S. The U.S. is only about 13% of our sales, but we do 30% of our sales in Asia. If you plug in the Axalta delivery model in the U.S., which has demonstrated value and impact and you take that model and you plug in the Akzo products and the Akzo businesses, and you do the same with the Akzo platform in Asia and Europe for the Axalta products, you can see that you can push harder and faster. So we're very comfortable that the combination of the product complementarity and the strengthened geographical coverage will lead to growth above and beyond the market. Chris?

Yes. And just very little to add. So I think what Greg has walked you through is how we will approach the market. And then just 2 data points on how we will support it, which both companies coming together, what I mean by being stronger is think about the ability of investing $400 million in R&D, we can certainly drive growth aspects of the business because of the fire potential we have in M&A. And then also in terms of capital and what we can deploy with our free cash flow, we believe we've built a company that will really be able to drive focused growth in areas we want to really drive growth in the future.

Our next question is from the line of Chetan Udeshi with JPMorgan.

My two questions. The first one is, what is the role of the Decorative Paints business within the broader combined Co? I remember, Greg, you alluded to this question on your third quarter results call that there are no real synergies between Decorative Paints and Industrial Coatings. And if you were able to scale your Industrial Coatings business with something, which seems to be this, then the eventual exit from Decorative Paints is not unfeasible? And the related question is, if you were to sell your decorative paints business, would you have -- would that have any impact on your synergy number? And the second question is a bit more cynical one. Typically, we see these sort of mergers and all of the existing restructuring activities sometimes get lost. And we are aware, and I'm sure we all track Akzo's own industrial efficiency program. So are you still committed to delivering on the upside from that program? Or do we sort of somehow miss that as part of this transaction in the next 12 to 18 months?

Thanks, Chetan. I appreciate your self-described cynical question, and I'll answer your various points. On the existing cost actions, as I said earlier, our functional actions that we committed to, we initially said EUR 150 million of savings, and then we raised it to EUR 175 million. And as we explained, all that EUR 175 million is already implemented. So you haven't seen all of it in the P&L because you got carryover into next year. But at the end of -- on '26, you're going to see the full run rate of that EUR 175 million of cost synergies on the functions. And then on the Industrial side, we said EUR 350 million.

EUR 300 million.

EUR 300 million, see I'm already raising the bar. We said EUR 300 million. And we said it was a 3-year program, and we said all the actions would be implemented by the end of '26. And we also gave clear milestones of how much of that you'd see in our P&L. It's all in our Q4 presentation. So we're committed to those. It's all going to be visible. It's all going to be fully pursued. And by the way, the deal closes late '26, early '27. And by that time, the actions on Akzo's side will be completed and they'll be measurable. So rest assured that we're fully committed and we will deliver. And then your question on Deco, what we've been doing on Deco in Akzo is that we're the market leader in Europe. We're the market leader in Latin America. We have a mixed bag of businesses in Asia in Deco. And we have a few countries in which we have a leadership position, and then we have a bunch of countries in which we're a follower. And Deco is fundamentally a local business, which means that you can sell or you can manage these businesses independently from each other. So we're fully committed to realizing value from our Deco Asia assets wherever we don't have a leadership position. And we've made that commitment. We started delivering on that commitment by selling India for 25x EBITDA. As I said, the deal is closing in the next couple of weeks. And as part of this merger, we've agreed with Axalta that we will continue monetizing these Deco Asia assets between signing and closing. So we're not stopping anything. I think it's known by the market that we're in the process of selling Pakistan and there's more to come. So that doesn't change, that continues. And finally, the synergies are not on Deco, obviously, because the Axalta portfolio doesn't have any Deco. And therefore, if I had any synergies on Deco, I'd be contradicting myself from earlier on, which is to tell you that this isn't another cost program at Akzo. This is synergies from combining the operations of AkzoNobel and Axalta. And once again, if you think back to all the stuff that we're doing currently at Akzo, a lot of it actually impacts the Deco side. So you're not at risk of seeing the buckets commingled and things get lost in the fray. Did I answer your question, Chetan?

Yes, very well.

The next question is from the line of Ghansham Panjabi with Baird.

Congrats again. So I guess on a pro forma basis, how should we think about the portfolio split between end market dynamics that are cyclical versus those that have secular tailwinds associated with them? Obviously, from a public market standpoint, one is worth just much more from a valuation standpoint than the other. And then related to that, I would love to hear your individual thoughts on whether you think the auto, Refinish volume challenges in the industry are secular or cyclical?

Chris, do you want to take the secular or cyclical question?

Sure. Obviously, Ghansham, thanks for calling in. Obviously, we look at it as cyclical. And we've positioned it and as we look at how it's -- how the year has played out and especially how we look at Q1 and Q2, we certainly believe the market will return to what we would define as more normal in the Refinish space by the end of Q1 into Q2. Specific to us, obviously, there was 2 issues that was driving our market. One is the normal decline that we saw or the decline that we saw in the Refinish space driven both by insurance rates and obviously, let's call it, consumer preference or consumer confidence. And the second one was a specific issue with destocking specific to one of our distributors acquiring another one and let's call it, the consolidation there led to what we saw. We do believe that, that destocking element will play out by next -- by the end of Q1. And on top of that, the other element of this is we certainly are seeing a little bit more market stability. I mean, I think you've seen some recent announcements where you can also see that Q4 is starting to balance out a bit. So again, we do believe that this market will recover specific to Refinish.

Thanks, Chris. And I'll jump in, Ghansham. We're also active in Vehicle Refinish. We're much smaller than Axalta, but we concur with Chris' and Axalta's view. We're not smart enough to pick the bottom. But frankly, this deal is not about picking the bottom of anything. It's -- we're both exposed to the same macros, and we both have the conviction that Refinish is going to rebound as and is in a cyclical downturn. So on that, we're very much aligned. And then your question on the portfolio in general, it's a mixed bag. I mean you've got businesses that are more naturally cyclical like Marine, shipbuilding has a cyclical element. But when you say Marine & Protective, Protective is a lot of infrastructure, which is a lot less cyclical. If you take auto, there's some cyclicality involved. If you take Aero, the order books are full for years to come. So whether you believe it's cyclical or not, you're not going to see that cycle in the next 5 years, probably, especially if you listen to the stuff on the Qatar Air Show today. And then if you take a business like Powder. Powder is multiple end markets. There's a liquid to powder conversion. It's really not cyclical. Packaging, which is beverage cans and is not very cyclical. And Deco, which we talked about earlier, Deco is not very cyclical. Deco is linked to consumer confidence. So it breathes in and out based on whether people feel good about their prospects or not. But it really has nothing to do with industrial cycles. At the end of the day, when you buy into a coatings business, what you're buying is the end market diversification. You're buying a portfolio of things that may have an element of cyclicality, but that taken together are a lot less volatile because these are not the same cycles or some of those businesses like Deco don't really have a cycle. So hopefully, that answers your question, Ghansham.

Yes, it does.

The next question is from the line of Georgina Fraser with Goldman Sachs.

First one for Greg, and it's just a query around interim leadership at Akzo. Is Fredrik Westin out of a job? And second question for Chris, you mentioned rerate potential. Could you talk about what you would see driving that? I'm not seeing any peers trading at a premium. So just wondering what you think would be the driver? And then final question for both of you. Timing-wise, it seems like the stars have really aligned for this longtime proposed transaction. Are you sensing that industry consolidation in general is back on the minds of your competitors as well?

Thanks, Georgina. I'll take the Greg question. Chris will take the Chris question, and then we'll take the timing question together. So your question is, is Fredrik Westin out of a job? I mean, Fredrik Westin is not in the company yet. He's joining 1st of January. As you can imagine, I let him know ahead of time that this transaction was in discussions. He -- we did that in all confidentiality. He also understood that -- understands that were the transaction to happen -- were to happen, he wouldn't be the CFO post closing. So all of that is things that he's aware of and has been aware of longer than you guys have for obvious reasons. And we still would very much like Fredrik to join, but we also understand that he's got questions to ask himself. And our job is to answer those questions and to find the best arrangements to make it work. So I don't really have an answer for you. What I can tell you is that I've got Maarten de Vries sitting next to me. And I keep saying that Maarten is retiring, which pisses him off because Maarten is a very young 63 and is not looking to stop anytime soon, at least has all the energy in the world to do that. And Maarten also is incredibly loyal and dedicated to Akzo. So regardless of what happens, we have people mining the till and we'll make sure that we have the best leadership team for AkzoNobel in this period between signing and closing, which is going to be a period of a lot of activity.

We expect them to start on January.

Yes. But at this point, as Ben rightly points out, we expect them to start on the 1st of January. And once again, it's -- the realization of this deal is from today. So give us a little bit of time to work that out with him. But we have our fingers crossed. Chris, do you want to take the rerating question?

Sure, absolutely. Thanks for the question, Georgina. From my perspective, Axalta has 3 end markets -- 3 primary end markets. Akzo has about 5 and the combined company now has 7 (sic) [ 8 ]. And if you put it in perspective with our peer set, I think the closest one would be PPG, and we see them trading at obviously a higher multiple than both of us. I don't normally do comparisons with our competitors, but I do believe that we have significant upside from a rerate potential because the combined company, not only from a revenue perspective, but an enterprise value perspective of being getting -- I believe we can get on the S&P 500. The margin profile is significantly higher than most of our peers. And then the fact that we have $3.3 billion of EBITDA and $1.5 billion of free cash flow, I think all of that strength gives us an incredible opportunity to be able to rerate to the right spot. And I believe there's upside on the rerate potential for us.

Thanks, Chris. And the consolidation question, Georgina. Look, the market was closed for a while until sometime last year, the debt market was closed and then the debt market reopened, but the world was a complicated place, conflicts in different places and the tariffs. I think it made everybody really cautious. And also, you have to keep in mind that this is an industry where you take all the top companies, Sherwin, PPG, Akzo, Axalta, I could list a few others. There isn't a single CEO that's been in the job for less -- for more than 3 years. I'm actually the elder statesman, if you can believe that, of the people that I've listed. So the combination of the market turmoil, the closed debt market and new CEOs finding their marks, I think, put consolidation on hold for a while. But you saw recently the BASF coating deal. Now you could say, well, there were no trade buyers, but that was a complicated portfolio for a trade buyer. Now Chris and I are talking to you today about consolidation. And I'm pretty sure from the vibes I pick up from industry discussions that there are people asking themselves questions too, because at the end of the day, the coatings market is still fragmented and there's value to scale, and this industry would benefit from further consolidation. But at the end of the day, Chris are doing -- our part -- and then everybody -- everything else is somebody else's question to answer. Chris, do you want to add anything?

Yes. I love the example, Greg, of using BASF. And Georgina, if we were to use from our perspective, the multiple that we believe that deal went through on as well as the synergy potential of that deal and the margin, we believe we have incremental upside and a great potential in the deal that we are here announcing today.

And Chris, if you believe, as I do, that Carlyle is a shred investor, and you know that they paid, what, 12x EBITDA for BASF coatings, I'm getting a hell of a deal. I don't want you to start renegotiating.

Not too late. No.

Our last question is from the line of Aleksey Yefremov with KeyBanc Capital Markets.

This is Ryan Weis subbing in for Alex this morning. Congratulations on the announcement. So just two questions for me. I guess the first one would just kind of be on the margin profile of the 2 businesses. If I think about Akzo, historically, EBITDA margins are pretty far below where Axalta has been. But when you kind of include the synergies, we're talking about something in the 20% range. So just when I think about where the synergies will be driven between the 2 businesses of Deco and Performance Coatings, wondering if maybe one has more opportunity than the other? And then secondly, just on Refinish. I was hoping maybe you could talk about where some of the overlaps are between Axalta and Akzo. And maybe just does Akzo play more in mainstream premium economy segments kind of the Refinish market?

Thanks, Ryan. I'll say a word on Refinish. The overlaps, we're both active. Axalta is a much bigger business in Refinish. I think it's premature for us to talk about where things overlap and where they don't because we'll -- we're in the process of getting ready for regulatory filings. So let us handle all that diligently before we start answering those questions. If Chris wants to add anything to this, he can -- he'll do that after I tackle your synergy question. The margin profile of Akzo, Akzo and Axalta are not in the same businesses. I mean, we have some overlaps. But there's a weighted average dimension to this. Vehicle Refinish is a very profitable business. We -- I'm not going to give you the profitability profile of all the businesses individually, but we, as Akzo have a margin commitment of north of 16x -- 16% EBITDA, I'm sorry, by 2027. So we're ramping up in terms of value extraction from these businesses. The synergies between Axalta -- maybe I'm picking a new name. Axalta and Akzo are on top of that. And clearly, the synergies are on the coating side. Deco doesn't really benefit from this transaction at all. Did I answer your question, Ryan? And yes, did I answer your question?

Yes.

And Chris, do you want to answer the VR question in a more legalistic way than I did? I don't think this is something we should tackle now, but have a go.

No, I completely agree. I think certainly, we're filing in many jurisdictions, and we need to see how that plays out.

Next question is from the line of John Roberts with Mizuho.

Axalta was speculated to have had discussions with Nippon. PPG tried to acquire Akzo, -- even Sherwin doesn't really have any trust there with Akzo. How widely did you explore other combinations with both companies?

We didn't. We knew -- we've known for a long time that AkzoNobel and Axalta are a really good fit. First time that was tried was 2017. Hopefully, this is the last time because we'll get it across the finish line. And I can guarantee you, although I won't give you the exact dates that there were multiple other attempts in between. So it's -- the industrial logic has always been very clear, I think, certainly to both companies, but also to most observers. We weren't shopping the business around. We were really trying to build something stronger for the future. And I think we're doing that. Is your question an interloper question? Or what's your question exactly, John?

No, we could have created 2 large leaders here, I guess, 2 different combinations that might have occurred out there.

Yes. I mean I'll answer the PPG question because you've asked it. I wasn't around at the time, but PPG and AkzoNobel, it's pretty massive overlap and socially and regulatory -- from a social and regulatory perspective, really complicated. The logic of 2017 hasn't really changed. It doesn't mean that it couldn't work. but it means that it's a more -- it's much heavier lifting than what we're trying to do today. Today, we have a clear path to value creation. And I think this clear path has a lot of value in a world where there's a lot of macro uncertainty. I think it's exciting to have 2 businesses that come together and that tell you we're going to deliver pretty much $6 billion of value through synergies over the next 3 years, come rain or shine. Chris, do you want to add anything or talk about Nippon?

No, I think similar to you, obviously, I wasn't here when that happened. I think coming in and much like Greg and I, both of us looked at our plan of what we could do stand-alone with our companies. We probably looked at what other opportunities were there to really drive value and build -- create value for our shareholders and our stakeholders. And as I said previously, I believe that there is no better platform. I think these portfolios were always meant to be together. They're absolutely complementary and they create a powerhouse. And certainly, it just made sense for both of us to get back together at this.

I think this is the last question.

Yes. That concludes our Q&A session. Sir, please go ahead.

If you'll allow me, I'll wrap up quickly. This is an exciting day for both AkzoNobel and Axalta. As you can tell from this conference call, it's a really fluid discussion between the 2 teams. We've worked a lot together on this. Our predecessors have also worked on it. So this has been a long time coming. And we think this is exciting for all stakeholders, particularly shareholders. We believe in the mechanical value creation of the synergies, and we believe we can get this across the finish line by the end of '26 to early '27. It's a unique opportunity for our companies. And once again, we were able to put this together because both companies felt good about where they were. Both companies felt that they had further upside and a no premium merger is hard to pull off, but we feel we've got the components in place, including the EUR 2.5 billion special dividend for those of you who forgot to plug in into your model, you know who you are. And look, this is an exciting time. We hope you share our excitement, and we look forward to spending more time socializing this opportunity with you over the next few months, knowing that there's going to be a shareholder vote on both sides that's going to come towards the middle of the year. So on those words, thanks again. Thank you for your time, and we'll talk to you soon.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.