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In another active year for corporate deals, Dutch paints specialist AkzoNobel has both eluded capture and failed to close a big acquisition. Having fought off US rival PPG, this week it lost out trying to buy Axalta, a US coatings maker. Nippon Paint appeared from nowhere, reportedly with an all-cash bid at a premium to Akzo’s. Full deal details are not available. Akzo shareholders will be relieved; less so those of its bid rival.

Axalta was an appealing target for both bidders. Neither Akzo nor Nippon Paint have much exposure to the large North American market. Akzo only generates 17 per cent of its top line there, Nippon Paint gets less than half that. Axalta, with more than a third of revenues from North America, offered the chance for both bidders to build scale and diversify their portfolios.

However, considering that Axalta’s forward price/earnings ratio of 20 times was about a sixth higher than Akzo’s at the undisturbed price, a healthy cost reduction plan would have been required to eat up the premium. Akzo had hatched a plan to sell off its own specialty chemicals business to help offset acquisition costs. Nippon Paint’s all-cash offer evidently appealed more to Axalta.

With good reason. Axalta relies on the US and Canadian car sales going up. It is not clear that will happen. After years of strong growth US car sales this year have stalled, only up 1 per cent year on year to November. Nippon probably wants Axalta to add some overseas exposure to its otherwise sleepy Japanese sales. But given the slowing auto market, Axalta’s own shareholders may prefer a cash exit.

Share price movements on Wednesday tell the story best. Akzo’s rallied and Nippon Paint’s dropped. Paying no less than $10bn in cash including debt for Axalta would really stretch Nippon Paint’s balance sheet with only about $5bn in equity. Its shareholders should be concerned if this deal goes through. Akzo, unwittingly, has avoided painting itself into a corner.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Sign up at ft.com/newsletters.

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