PPG may go hostile in Akzo Nobel bid
AMSTERDAM/NEW YORK: Akzo Nobel NV yesterday rejected PPG Industries Inc’s third takeover bid, saying its own break-up strategy was superior and raising the prospect that the US rival will take the $29.5 billion offer directly to the Dutch coating and chemical company’s shareholders.
After taking two weeks to evaluate the bid, Akzo Nobel reiterated that the proposal was flawed and riddled with risk, defying pressure from shareholders such as Elliott Management Corp to negotiate.
Chief executive Ton Buechner said he and chairman Antony Burgmans met with their counterparts on May 6 and, although the get-together was “cordial and respectful,” Akzo Nobel delivered its rebuff.
PPG said the meeting in Rotterdam lasted less than 90 minutes, with the Dutch team declining to negotiate from the outset.
Akzo Nobel’s defiance and Buechner’s solitary meeting with PPG will likely rankle those investors who were pushing for more substantial talks, including Causeway Capital Management LLC.
Buechner said yesterday that the focus was on pushing ahead with Akzo Nobel’s plan to separate the specialty chemicals business to create two focused companies.
“Akzo management now has to deliver,” said Jeremy Redenius, an analyst at Bernstein. “As so many large shareholders have spoken out in favor of a negotiation with PPG, we expect them to challenge this rejection. There is also a slight chance PPG will attempt to go directly to shareholders.”
Akzo Nobel shares fell 2.9% to €77.08 as of 9.46 a.m. in Amsterdam, the lowest since April 3. That values the company at almost €20 billion ($21.9 billion).
Having left the meeting empty handed, the focus will be on the next move of PPG CEO Michael McGarry and Hugh Grant, the rival company’s lead independent director.
McGarry has said he plans to make a hostile takeover bid if his reluctant target doesn’t come to the negotiating table and hammer out an agreement by June 1.
In a statement yesterday, PPG criticized Akzo Nobel for being blinkered, unwilling to discuss anything beyond details of the proposal already tabled.
“There is a big chance PPG will go hostile, a scenario Akzo of course has taken into consideration,” Theodoor Gilissen Bankiers analyst Joost van Beek said by phone.
“That Akzo shares will decline is clear. Everyone is waiting on a response from PPG, which is a party that I believe would follow through with its takeover attempt.”
“The extensive review and the meeting with PPG confirmed to Akzo Nobel that its own strategy is better and does not contain the risks and uncertainties inherent in PPG’s proposal,’’ Akzo Nobel said. “PPG’s proposal also undervalues the company and doesn’t include an appropriate change of control premium.”
PPG couldn’t immediately comment, the company said in an email.
Buechner has proposed splitting the Amsterdam-based company in two and rewarding investors with a higher dividend. PPG, the world’s largest coatings maker, said the latest bid was superior to that plan.
Under Akzo Nobel’s road map, the company plans to create two focused businesses — paints and coatings and specialty chemicals.
The paintmaker also intends to “significantly” increase financial guidance for these two businesses, and boost shareholder returns, including a 50% higher dividend for 2017 and €1 billion special cash dividend payable in November.
Elliott has called for the dismissal of chairman Burgmans.
The Dutch company previously rejected the hedge fund’s request to put the motion to a vote at an extraordinary shareholders’ meeting, saying it would be “irresponsible, disproportionate, damaging and not in the best interests of the company.”
“PPG’s proposal contains no commitments on timings to value creation, Akzo Nobel said yesterday.
“The rival also gives no commitments or evidence to support its assertion that employees of Akzo Nobel will have any benefit under its ownership, and has created widespread anxiety and uncertainty for thousands of jobs across the company’s 46,000-strong workforce,’’ it said.