Elliott Blasts Akzo Nobel Over Paintmaker's Shareholder Meeting

(Bloomberg) -- U.S. hedge fund Elliott Management Corp. escalated its battle with Akzo Nobel NV, accusing the Dutch paintmaker of deliberately flouting shareholder rights just as the company pledged to repair relations with investors.

The Amsterdam-based manufacturer of chemicals and coatings is in “serious and direct contravention” with European shareholder rules on the timing of a Sept. 8 investor meeting, Elliott said in a statement on Tuesday. The riposte came hours after Akzo Nobel vowed to “strengthen and maintain a constructive dialogue” with shareholders and create a board committee for relations that will be advised by JP Morgan Cazenove Ltd.

Akzo Nobel is emerging from a tumultuous few months that left relations with some investors in tatters. Elliott led a campaign for talks with rival-turned-suitor PPG Industries Inc. on its unsuccessful $29 billion takeover bid, and has mounted a series of court cases to have Chairman Antony Burgmans removed. Adding to the upheaval, former CEO Ton Buechner suddenly resigned last week for unspecified health reasons, leaving the new CEO, Thierry Vanlancker -- who only joined the company in 2016 -- to carry out the ambitious targets the company put forth as its defense against being sold.

The latest tussle between Akzo Nobel and shareholder Elliott revolves around the date chosen by the company for the meeting to vote on Vanlancker’s nomination. It falls short of the 60 days required under Dutch rules for shareholders to be able to submit agenda items, but within the 42-day limit for giving them notification.

‘Not Fooled’

Elliott said it wants investors to be able to vote on a resolution for the removal of Burgmans. In response to a question Tuesday about the choice of the date, the chairman said, “it was on balance important that we would have the shareholder meeting quickly.”

“Shareholders are not easily fooled, neither by blatant circumvention of the law nor by empty claims of active shareholder outreach,” Elliott said. The fund has maintained pressure on Akzo Nobel since PPG walked away from its approach June 1. It’s making a second attempt in court on Thursday to oust Burgmans. It lost a separate case earlier this year during which a judge ordered the paintmaker to restore its relationship with shareholders.

Burgmans, who has born the brunt of opposition from Elliott to the company’s strategy, announced Tuesday he plans to retire in April. Akzo Nobel also said it appointed Ruud Joosten as chief operating officer, while Werner Fuhrmann will head the specialty chemicals unit it plans to spin off. Approval from shareholders for that transaction would be sought at a later date, the chairman said.

Disappointing

Akzo Nobel also reported Tuesday earnings before interest and taxes decreased 6 percent to 461 million euros ($537 million), according to a separate statement, missing the average estimate of analysts surveyed by Bloomberg of 500 million euros.

The results were “very disappointing,” Baader Helvea analyst Markus Mayer said in a note. “We doubt that Akzo has the ability to pass on higher raw material costs and therefore fear that the achieved cost saving will fade away over the coming quarters.”

Akzo Nobel shares rose 0.5 percent to 74.64 euros in Amsterdam, taking gains to 27 percent so far this year and valuing the company at 19 billion euros.

The impact of raw materials was higher than anticipated at the beginning of the year, and raising prices has happened more slowly, Vanlancker said during an analyst call. The company plans to focus on keeping costs down and slowing the rate of hiring, he added.

“We remain focused on executing our new strategy and continue to expect Ebit for 2017 to be around 100 million euros higher than 2016,” the CEO said in the statement. “This assumes no further material changes in market and economic dynamics, including foreign currencies.”

Spinoff

The maker of Dulux paint and Sikkens coatings promised in April to return 1.6 billion euros to shareholders this year, and set a target of 15 percent return on sales by 2020 for its paint and coatings business, and a return of 16 percent for specialty chemicals. Akzo Nobel also promised to spin off the chemicals division by April, of which the “vast majority” of net proceeds would also be returned to investors.

“We have put Akzo in the rear-view mirror and we’re looking forward to growing our business,” PPG CEO Michael McGarry said July 20 in response to an analyst’s question on an earnings conference call. Akzo hasn’t been in contact with PPG after its U.S. rival walked away, Burgmans said.

To contact the reporter on this story: Ellen Proper in Amsterdam at eproper@bloomberg.net.

To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, John Bowker