PPG STILL CHASING BIG DUTCH ACQUISITION
Company says $24.2B bid is under value, would lead to job cuts
Dutch paints and chemicals company AkzoNobel NV has rejected a second, higher bid from rival paints giant PPG.
Akzo said that a proposal PPG submitted Monday to acquire it for $24.2 billion undervalues the company and would lead to job cuts.
PPG’s first offer was $22 billion.
“The proposal not only fails to reflect the current and future value of AkzoNobel, it also neglects to address the significant uncertainties and risks for shareholders and other stakeholders,” the Amsterdam-based company said.
Hours after Akzo spurned its offer, PPG on Wednesday issued a statement saying that it believes the latest bid provides “extraordinary value” to Akzo shareholders and that it hopes to meet with Akzo to negotiate a transaction.
Although Akzo has rebuffed repeated efforts by PPG to discuss the bid, Michael McGarry, PPG chairman and chief executive said, “We look forward to the opportunity to engage in dialogue” with Akzo’s management team and board to “work together towards an agreement on mutually acceptable terms.”
Mr. McGarry is traveling to Amsterdam this week to lobby for the deal, company officials confirmed. Reuters reported that Akzo’s chief executive Ton Buchner said he was not planning to meet or talk with the PPG executive.
Akzo said PPG’s latest offer was 88.7 euros per share, up from the original bid of 83 euros. The higher offer includes 56.2 euros cash and 0.331 PPG shares.
PPG calculated that the new bid was worth 90 euros per share, including a shareholder dividend, and that with debt assumption, the deal is worth about $26.3 billion.
At a share price of 90 euros, PPG said the offer represents a 40 percent premium over Akzo’s closing price on March 8 before the first offer became public.
Shares in both companies fell Wednesday after the second bid was disclosed. Akzo’s stock fell about 1 percent to close at 75.78 euros ($81.82); PPG’s shares closed at $104.25, down 23 cents.
Concerns about divestitures
Akzo said the revised bid fails to address concerns its board and management had when they spurned PPG’s original bid.
Besides undervaluing the company and triggering possible job losses, Akzo said the deal would result in significant divestitures because of antitrust concerns — especially in Europe where both companies compete in decorative and performance coatings markets.
In 2012, PPG bought Akzo’s North American architectural paints business, including the Glidden and Liquid Nails brands. Akzo produces the Dulux paints brand and PPG’s signature brands, in addition to Glidden, include Olympic, Pittsburgh and PPG Paints.
While Akzo said PPG’s takeover bid does not address issues surrounding research and development, pensions and jobs, PPG maintained its offer takes into account “all AkzoNobel stakeholders including
shareholders, employees, customers and the communities it serves.”
The deal would not only deliver value, PPG said, but would create “a stronger competitor in a highly competitive global marketplace ... and a complementary cultural fit.”
PPG expects a combination with Akzo would result in cost savings of $750 million annually including reduced costs for raw materials, supply chain management and distribution networks.
A combined company would be headquartered in Pittsburgh, PPG said, but leadership of some global business units would be based in Europe. PPG said it would add one Akzo director to its board and provide “significant opportunities for AkzoNobel’s management team to contribute to the long-term success of the combined company.”
Both companies generated about $15 billion in sales last year but while more than 90 percent of PPG’s revenues came from paints and coatings, Akzo has a large specialty chemicals business which accounted for about one-third of sales.
Akzo may proceed with plans to spin off its chemicals unit to “unlock the value within our company ourselves,” said Mr. Buchner.
“We are executing our plan, including the creation of two focused businesses and new cost structure, and believe this gives us a strong platform for continued profitability and long term value creation for all our stakeholders with substantially less execution risks,” Mr. Buchner said.
A nudge from investors
While Akzo and some analysts maintained PPG’s offers have been too low, the company may face pressure from some shareholders to enter negotiations with PPG.
Among them is Elliott Management Corp., a hedge fund that owns a 3 percent stake in Akzo. Elliott has urged the Dutch company to talk with PPG saying that while the second bid may still be undervalued, it “is a credible basis for engagement.”
According to some reports, Elliott may push to remove Akzo’s board if it doesn’t come to the table with PPG. That could become complicated because Akzo, like many Dutch firms, has in place a stichting which is a legal entity that owns priority shares and which can act as a poison pill defense against takeovers.
Meanwhile, many Dutch political leaders remain firmly behind Akzo in its efforts to remain independent amid growing nationalist sentiment in Europe. Last month, Anglo-Dutch consumer brands giant Unilever rejected an unsolicited $143 billion takeover offer by food giant Kraft Heinz Co.
Four Dutch provinces this week issues a statement opposing PPG’s offer for Akzo, saying 5,000 jobs would be put at risk.