The UK's Competition and Markets Authority has initiated a Phase one investigation into AkzoNobel's proposed $25 billion acquisition of Axalta Coating Systems, introducing fresh uncertainty into the deal's completion timeline.
The CMA will assess whether the merger could substantially lessen competition in specialized industrial and automotive coatings within the UK market. The watchdog's primary concern likely centers on overlapping product lines in the highly concentrated industrial coatings sector, particularly in automotive refinish, protective coatings and certain specialized industrial applications. Both companies hold significant market shares across Europe in these segments.
In the credit markets, regulatory delay typically translates to spread widening. Investors price merger risk through wider credit spreads on the acquiring entity's bonds, reflecting increased leverage post-acquisition, potential deal termination fees and the cost of divestitures. For AkzoNobel, which has a market capitalization around $20 billion, a $25 billion deal substantially increases enterprise value—making regulatory delay or termination financially material. Prolonged investigation extends duration risk for existing bondholders, who demand greater compensation for extended uncertainty.
A Phase one clearance would allow the deal to proceed. A more extensive Phase two review would significantly delay AkzoNobel's post-acquisition deleveraging plans and could impact credit ratings, increasing the company's cost of capital. The CMA has set a November 15 deadline for its Phase one decision.
