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AkzoNobel says no again to PPG, rejects $28.8B; investor makes waves

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Announcements | Business Practices

PPG said Monday it was “disappointed” that AkzoNobel rejected its third friendly but unsolicited takeover bid.

PPG had on April 24 announced it offered about $28.8 billion, or about $103.77 a share, for the Dutch paint rival. It promised that the post-merger company “will emphasize many of AkzoNobel’s brands going forward, including, among others, the world recognized Dulux, Sikkens and International Paint brands.”

On Monday, PPG announced AkzoNobel had refused the deal and accused it of “ignoring the best interests of its stakeholders, including long-term shareholders who overwhelmingly support engagement.”

PPG CEO Michael McGarry and director Hugh Grant met Saturday with AkzoNobel CEO Ton Büchner and Supervisory Board Chairman Antony Burgmans.

AkzoNobel had provided “no feedback” on the April 24 offer until after PPG followed up Thursday, according to PPG. AkzoNobel on Friday replied that it would meet PPG in Rotterdam, the Netherlands, on Saturday.

Assuming the Pittsburgh-based PPG leaders weren’t already in Europe, they flew a long way for nothing:

“The meeting lasted less than 90 minutes, and the AkzoNobel chairs stated at the beginning that the meeting was solely for the purpose of reviewing PPG’s revised proposal,” PPG said in a statement. “Specifically, the AkzoNobel chairs stated up front that they did not have the intent nor the authority to negotiate. They also did not share any concerns regarding PPG’s proposal, or analysis or comparison of their new standalone strategy versus PPG’s proposal, nor would they entertain any questions or discussion about their plan or analysis.”

AkzoNobel on Monday declared PPG’s price was still lower than AkzoNobel was worth and it believed it could do better for shareholders without a merger under a strategy announced April 19. It plans to spin off its Specialty Chemicals business within a year, “with the vast majority of net proceeds to be returned to shareholders,” give better financial guidance on its Paints and Coatings business, and boost the dividend by 50 percent this year and add a $1.07 billion “special cast dividend.”

“The PPG proposal undervalues AkzoNobel, contains significant risks and uncertainties, makes no substantive commitments to stakeholders and demonstrates a lack of cultural understanding,” Büchner said in a statement.

“By contrast, AkzoNobel has outlined a compelling strategy to accelerate growth and value creation which we believe will deliver significant long-term value for our shareholders and all other stakeholders. We will deliver this within a clear timeline, without the substantial level of risks and uncertainties attached to the alternative proposal.

“We have a strong track record of delivering on our commitments and are fully focused on accelerating growth momentum and enhanced profitability with the creation of two focused, high-performing businesses – Paints and Coatings and Specialty Chemicals – which will lead to a step change in growth and long-term value creation for shareholders and all other stakeholders.”

PPG argued Monday that its offer was 50 percent more than AkzoNobel’s “unaffected” share price and 24 percent higher than AkzoNobel shares reached after its plan was unveiled to investors on April 19.

“PPG continues to believe its proposal is vastly superior in shareholder value creation and provides more certainty to employees and pensioners than AkzoNobel’s recently announced new standalone plan,” PPG said in a statement. “… The failure of the AkzoNobel Boards to engage with PPG to fully evaluate and discuss PPG’s proposal reflects a continued lack of proper governance, and is another attempt to avoid a true comparison on stakeholder impacts of PPG’s proposal versus AkzoNobel’s standalone plan.”

Investors and an investor advocacy group had criticized AkzoNobel’s dismissive response to earlier PPG bids, according to our research and Reuters.

Elliott Advisers in particular has been a gadfly, calling for an “Extraordinary General Meeting” for investors and an agenda item to fire Burgmans. AkzoNobel rejected that proposal April 25, calling it “irresponsible, disproportionate, damaging and not in the best interests of the Company.”

Elliott Advisers called that answer “groundless and as an egregious dismissal of shareholder rights, further evidence of self-entrenchment and as a continued affront to proper corporate governance.  … Elliott believes that the reality is that Akzo Nobel is afraid of calling the EGM because shareholder feedback apparently indicates that shareholders would vote to remove Mr. Burgmans from his position as Chairman of the Supervisory Board.”

Dutch law only lets shareholders with 10 percent of a company call such a meeting, AkzoNobel noted; Elliott Advisers only owned more than 3 percent as of late March, but Reuters reported March 29 that the investment firm said 24.6 percent of shareholders agreed AkzoNobel should talk to PPG. This was before PPG sweetened the pot by adding another $4 billion to its offer.

Elliott’s response to AkzoNobel’s rejection seemed to suggest that because other shareholders thought as he did, they together added up to 10 percent.

“As far as Elliott is aware, it is unprecedented in European corporate history to have several large shareholders request the convocation of an EGM of a major corporate, and the fact that six Akzo Nobel shareholders have done so in this instance is indicative of the breadth and depth of shareholder discontent with the conduct of Akzo Nobel’s Boards,” Elliott said in a statement.

AkzoNobel noted that even 25 percent of shareholders weren’t enough to call a special meeting under PPG’s rules.

Following that dustup, Elliott Advisers on Thursday released a study that suggested 6,400 AkzoNobel employees “could be made redundant” (i.e., layoffable) under the company’s plan — far less than under a PPG purchase.

“Elliott would like to remind stakeholders that since 2009, Akzo Nobel has made 11,970 employees redundant, a figure which excludes further rationalizations made in 2015 and 2016, which Akzo Nobel chose not to report,” it wrote in a news release.

Around 1,000 employees have expressed support for an AkzoNobel not owned by PPG, AkzoNobel said Tuesday.

Elliott Advisers in April said it’d be watching what AkzoNobel did with PPG’s latest offer, so it’ll be interesting to see if there’s more fireworks.

“Given that there is a third PPG proposal being considered by Akzo Nobel’s Boards, as part of its evaluation of its next steps, Elliott intends to assess Akzo Nobel’s response to that proposal,” the company said.

It’ll also be interesting to see if PPG gives up or opts for a hostile takeover. It described its $28.8 billion bid as “one last invitation” for AkzoNobel to talk.

More information:

“PPG Issues Statement Regarding Proposal to Combine with AkzoNobel”

PPG, May 8, 2017

“AkzoNobel confirms focus on its own strategy to accelerate growth and value creation”

AkzoNobel, May 8, 2017

“Employees expressed their support for an independent AkzoNobel”

AkzoNobel, May 3, 2017

“AkzoNobel strongly supports Chairman in response to EGM request”

AkzoNobel, April 25, 2017

Images:

AkzoNobel’s headquarters in Amsterdam is shown. (Provided by AkzoNobel)

PPG, the hometown company, had a presence at the April Pittsburgh Collision Repair Education Foundation career fair. (John Huetter/Repairer Driven News)

AkzoNobel works council Chairman Steven Leijenaar presented AkzoNobel CEO Ton Büchner with a document showing support for an independent AkzoNobel from 545 employees. (Provided by AkzoNobel)