Pittsburgh Post-Gazette

PPG prefers to privately negotiate Akzo deal

- By Joyce Gannon

PPG Chairman Michael McGarry on Thursday reiterated that the Pittsburgh coatings giant prefers to hammer out a takeover of its Dutch paints rival AkzoNobel in private, but if Akzo continues to rebuff its advances, PPG will launch a public offer for the company by June 1.

In an interview following PPG’s annual shareholde­rs meeting, Mr. McGarry repeated earlier assertions that PPG’s $26 billion offer to buy Akzo is a better deal than waiting for Akzo to spin off its chemicals business and add shareholde­r value on its own.

He pointed to tepid reaction in financial markets after Akzo on Wednesday unveiled its strategy to separate its chemicals unit and pay out the proceeds to shareholde­rs as further evidence that PPG’s offer is more compelling.

Akzo’s shares moved up 21 cents to 78.53 euros Wednesday, still well below PPG’s latest offer of 90 euros per share.

“The best indicator is [Wednesday’s] stock market reaction to their day: it was a complete dud,” Mr. McGarry said. “The stock didn’t move so people are thinking it’s not worth it … if [PPG] went away, it would potentiall­y drop” further.

On Thursday, Akzo shares slipped 13 cents to 78.40 euros.

The Amsterdam-based company, which makes Dulux and

other paint brands, has rejected two unsolicite­d bids from PPG and declined to meet to discuss combining the companies into what would be the largest coatings maker in the world.

Mr. McGarry declined to say if PPG will raise its offer.

“We’ve always wanted a private, constructi­ve, substantiv­e, dialogue with [Akzo],” he said. “We prefer to negotiate in private, not in the press.”

Akzo faces mounting pressure to meet with PPG from shareholde­rs including hedge fund Elliott Management, which has called on Akzo to hold a special meeting to vote on ousting its chairman, Antony Burgmans.

Mr. McGarry said Akzo has put its shareholde­rs “dead last” in refusing to consider negotiatin­g a deal with PPG.

During the annual meeting Thursday at the Fairmont Pittsburgh, Downtown, Mr. McGarry said he would not answer questions from those in attendance about the company’s offer to buy Akzo.

He touted PPG’s performanc­e in 2016, saying adjusted earnings per share grew by 7 percent over 2015 despite economic challenges.

Earlier Thursday, PPG said net income slipped less than 1 percent to $334 million as the global coatings maker continued to be hurt by unfavorabl­e foreign exchange rates and higher raw material prices. First-quarter sales rose by about 1 percent to $3.6 billion.

Adjusted income not including pension settlement and transactio­ns-related costs totaling $17 million beat analysts’ estimates by 3 cents.

Adjusted income was $351 million, or $1.35 per share, higher than analysts’ average estimate of $1.32. Sales also were slightly higher than analysts’ projection­s.

While volumes grew in Europe, Latin America and Asia, they were flat in the U.S. and Canada, Mr. McGarry said.

Growth was led by the industrial segment which includes automotive and packaging coatings. Industrial sales jumped by 7 percent to almost $1.5 billion.

But sales of the performanc­e coatings business, which includes house paints and aerospace coatings, fell by 1 percent to $2 billion, hurt by weakness in the marine coatings market.

While PPG’s 600-plus company-owned stores in the U.S. and Canada experience­d sales increases, the gains were offset by lower demand among independen­t dealers.

In a conference call with analysts after the meeting, Mr. McGarry said company stores, which focus largely on paint sales to profession­al contractor­s, benefited from an improving economy that put “more money in the pockets of consumers.”

“There does seem to be more of a trend of ‘do it for me’ than ‘do it yourself’,” he said.

Rebranding all company stores under the PPG Paints name and attaching its logo to labels on all its paints including those it picked up through acquisitio­ns, like Glidden, are part of aggressive efforts to get the PPG name in front of more consumers.

But the effort is not just on paint cans.

Recent high-profile marketing deals such as securing the naming rights to the PPG Paints Arena and becoming the official paint of the National Hockey League are part of a long-term strategy, Mr. McGarry said.

“We will put more branding into the PPG name. It’s something we are working on and talk continuous­ly to our retail partners about how important it is to us.”

Glass sales, which account for only about 2 percent of PPG’s revenues, dropped by 38 percent to $83 million primarily because PPG last year sold its European fiber glass business.

While it pursues Akzo, the company is still scouting for other businesses to buy. PPG has committed to deploy between $2.5 billion and $3.5 billion in cash on acquisitio­ns and share buybacks in 2017 and 2018.

“We’re not slowing down our acquisitio­n efforts,” Mr. McGarry said.

“The pipeline is engaged. We look at most everything in our space.”

PPG’s shares closed at $106.37, up $1.37.

 ?? Nate Guidry/Post-Gazette ?? Michael McGarry, PPG chairman, said Akzo is not the only business the firm is scouting to buy. “We are not slowing down our acquisitio­n efforts. The pipeline is engaged. We look at most everything in our space.”
Nate Guidry/Post-Gazette Michael McGarry, PPG chairman, said Akzo is not the only business the firm is scouting to buy. “We are not slowing down our acquisitio­n efforts. The pipeline is engaged. We look at most everything in our space.”

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