PPG walks away from bid for AkzoNobel
With a deadline looming for a final attempt to buy Dutch paints maker AkzoNobel, PPG chairman Michael McGarry tried yet again to arrange a conversation with Akzo’s chairman, Antony Burgmans.
Mr. McGarry wanted just five minutes on the phone to reiterate the reasons Akzo should come to the table and hammer out a deal to create the world’s largest coatings company.
But Mr. Burgmans declined the call — just as Akzo had refused for three months to have any part of negotiating a mega-merger with PPG and had turned down three ever-higher unsolicited offers that grew to $29 billion.
PPG was even willing to raise its price more if Akzo would only agree to in-person negotiations, Mr. McGarry told Mr. Burgmans in a letter he wrote Monday after Mr. Burgmans said in an email that he didn’t want to talk.
But nothing worked. Not a higher bid, a promise to spend up to 50 million euros ($56 million) to retain key managers, and a proposed breakup fee of 600 million euros if the deal didn’t clear regulatory approvals — none of it was enough to sway Akzo, which makes Dulux, Sikkens and other paint brands.
PPG — saying it didn’t want to proceed without the two sides holding good faith discussions — on Thursday withdrew its offer.
Under Dutch financial law, Thursday was the deadline for the Pittsburgh company to submit a formal draft of an offer to buy all of Akzo’s outstanding shares — in effect, a hostile takeover.
Now that it has walked away, Dutch regulations say PPG has to wait at least six months before making another overture.
Mr. McGarry declined to discuss PPG’s decision on Thursday but said in a statement that though he still believes the bid by the maker of Olympic, Glidden and Pittsburgh Paints was a “compelling proposal,” dropping the offer “is in the best interests of PPG and its shareholders.”
In Amsterdam, Akzo’s chief executive, Ton Buchner, said the Dutch company remains on track with its own plan to create shareholder value by spinning off its specialty chemicals business and paying out extra dividends.
Its stock rose 51 cents to 75.02 euros, still far below PPG’s last sweetened bid which valued Akzo’s
shares at 90 euros apiece.
During the months that PPG pursued it, Akzo was under extreme pressure from a group of shareholders led by activist hedge fund Elliott Advisors who wanted Akzo to enter talks. Elliott went so far as to petition a Dutch financial court asking for a shareholder vote to oust Mr. Burgmans because the company wouldn’t negotiate.
But the court Monday rejected that request.
Elliott declined comment on PPG’s decision to drop its bid.
Another Akzo investor, Henderson Global, said the outcome was “sadly, all too predictable.”
“The small gene pool continues to do its worst on Dutch supervisory boards,” said John Bennett, head of European equities for Henderson.
Despite shareholder support, analysts in Amsterdam said PPG faced stiff opposition from the start because Mr. Burgmans, who faced takeover showdowns when he ran other large Dutch corporations, was adamantly against the deal.
Speaking during the hearing on Elliott’s request to have him removed, Mr. Burgmans said he had never experienced the level of aggression he felt PPG and Elliott displayed in pushing for a deal.
“Burgmans won the battle by keeping his back straight and not bending,” said Joost van Beek, an analyst at Theodoor Gilissen Bankiers
“The deal collapsed because AkzoNobel just did not want it, and as long as the current management board and supervisory board are there, I don’t see that changing,” said Mutlu Gundogan, an analyst at ABNAmro Bank.
From the time it became public in March, PPG’s interest in acquiring Akzo also got unfavorable response from some Dutch government officials who are riding a recent wave of nationalism in European countries.
Government commissions in the Netherlands are reviewing several proposed regulations, as well as the creation of a panel that could block unwanted takeovers by foreign companies.
Mr. Burgmans formerly chaired Unilever, the Dutch-based consumer goods conglomerate that earlier this year rebuffed a takeover bid by Kraft Heinz Co., which is headquartered in Pittsburgh and Chicago.
“PPG has clearly taken the view that it is not only up against an intransigent board with little concern for their shareholders, but also Dutch courts and the government,” said John Colley, professor of practice in the strategy and international group at the University of Warwick’s Business School in Coventry, England.
Mr. Colley said Akzo’s shareholders could become “more difficult to deal with in the future” because Akzo’s value could fall unless another bidder turns up. He said it’s likely PPG would return after Akzo divests its chemicals unit at which point Mr. McGarry “will be seen as the savior of the shareholders.”
He doesn’t believe Mr. McGarry’s reputation was hurt by Akzo’s rejection.
“Michael McGarry will survive this attempt and, some will say, with an enhanced reputation as he knows where to draw the line on value. Pursuing a hostile takeover would be expensive and protracted, it would also alienate the [Akzo] management. All the evidence shows that far more is paid in hostile bids than ultimately friendly bids.”
U.S. markets reacted positively to PPG’s move, sending its shares up $2.80 to close at $109.16.
In his statement Thursday, Mr. McGarry said PPG remains focused on its growth opportunities.
While many industry reports currently rank the Pittsburgh company as the largest coatings maker in the world with annual revenues of $15 billion, it could soon be eclipsed by Cleveland-based paints company Sherwin-Williams, which last week won U.S. regulatory approval for its $9 billion takeover of Valspar. That deal is pending approvals in Canada.