Updates shares in paragraphs 1-2, adds Akzo quote in paragraph 6, details and context on proposal and Axalta merger in paragraphs 3, 7 and 8.

By Dimitri Rhodes

May 27 (Reuters) - Dulux paint maker AkzoNobel AKZO.AS has rejected a cash takeover offer of €73 ($85) per share from rivals Nippon Paint 4612.T and Sherwin-Williams SHW.N, the Dutch company said on Wednesday, sending its shares 16% higher.

The offer price represented a premium of 39% to AkzoNobel's last closing price of €52.52 per share. The shares jumped to €61 by 0813 GMT and were on track for their best trading day since October 2008.

AkzoNobel said the non-binding proposal undervalued its business, lacked deal certainty regarding regulatory clearances and would have split the company between the two suitors.

AkzoNobel's board continues to recommend the planned merger with U.S. coatings maker Axalta AXTA.N, it added.

Under the proposal, Nippon Paint would have acquired AkzoNobel and retained its decorative paints and industrial coatings businesses, while selling its automotive, marine and powder coatings divisions to Sherwin-Williams.

"Neither proposal qualified as a 'potentially superior' offer, compared to the Axalta merger," a company spokesperson told Reuters.

The planned merger with Axalta would create a combined coatings company with an enterprise value of $25 billion, led by AkzoNobel CEO Greg Poux-Guillaume.

The deal, which would see the combined company initially dual-listed in Amsterdam and New York, is expected to close in late 2026 or early 2027. AkzoNobel and Axalta expect to deliver $600 million in annual cost savings within the first three years of the merger.

"Akzo considers its own merger proposal with Axalta to be superior and pushes ahead on this track," brokerage KBC said in a note to investors.

($1 = 0.8593 euros)