PPG Pulls $29 Billion Akzo Bid After Chairman Refuses Call
(Bloomberg) -- In the end, Akzo Nobel NV Chairman Antony Burgmans refused even a five-minute phone call with the head of rival-turned-suitor PPG Industries Inc.
So deep-rooted was his determination to keep the Amsterdam-based company independent that over the course of three months, Burgmans resisted multiple takeover overtures by PPG Chief Executive Officer Michael McGarry including ever-higher bids, personal visits to the Dutch capital and lengthy letters. In the process, the 70-year-old Dutchman also overcame an attempt by Elliott Management Corp. to remove him in order to jump-start talks with PPG.
It wasn’t to be. On Thursday, the Pittsburgh-based company pulled its proposal, with McGarry calling time after Burgmans declined yet another offer to engage. Even a last-ditch effort to sweeten the $29.5 billion offer couldn’t breach Burgmans’s fortress.
“Burgmans won the battle by keeping his back straight and not bending,’’ Joost van Beek, an analyst at Theodoor Gilissen Bankiers, said by phone. “It was clear the company just didn’t want this transaction.”
In the transatlantic takeover battle, Burgmans emerged as the man to be wooed for PPG, and a hurdle to be dislodged for Elliott. Under his stewardship, Akzo Nobel rejected the U.S. company’s third takeover bid May 8, defying pressure from shareholders to negotiate.
With the offer pulled, the onus falls to Burgmans and Akzo CEO Ton Buechner to convince shareholders that they acted in their better interest, as the two managers set to work splitting up the company along two distinct lines: paint and specialty chemicals.
McGarry made multiple attempts to reel in the other side. He flew to Amsterdam to drum up public backing for his bid, then returned a few weeks later to Rotterdam, where he met Burgmans and Buechner at a non-descript airport hotel. In the course of a 90-minute conversation, he came up empty.
Burgmans’s hand was strengthened when a court this week rejected a petition by Elliott, billionaire Paul Singer’s New York hedge fund, to force a shareholder vote on firing the chairman. The fund claimed he was in “flagrant breach” of his duties to investors for rejecting PPG’s offers. Elliott declined to comment on Akzo or its view on the bid failing.
PPG’s frustration was palpable in the statement that laid out the retreat. Akzo’s board had “consistently refused to engage” and didn’t respond to calls or letters, McGarry said.
The U.S. company even made a final effort in recent days to bring Akzo Nobel to the negotiating table, offering to nominally increase the price and pay a 600-million-euro ($674 million) breakup fee if regulators rejected the deal. In addition to the possibility of raising its offer, PPG said Thursday it would consider paying Akzo Nobel shareholders a “ticking fee” of 10 cents a share for every month of delay in closing a deal past a 15-month target. The company also offered as much as 50 million euros towards retaining top management.
Akzo viewed PPG’s offer as too low from the beginning and the breakup fee didn’t sufficiently address concerns related to opening its books to a competitor and antitrust risks, according to two people familiar with the matter. The Dutch company also deemed the U.S. firm’s approach and negotiating style as overly aggressive, including the talk of going hostile, and the involvement of hedge fund Elliott strengthened this view, they said. Both companies referred to earlier statements when asked for comment.
Whatever the offer, Burgmans wouldn’t be swayed. Very much the elder statesman of the Dutch business world, Burgmans’s career has spanned four decades at the top corporate echelons. As chairman of Unilever, he became the public face of the Anglo-Dutch consumer-goods giant.
It was after his time at Unilever that Burgmans endured his messiest corporate experiences, cutting his teeth with shareholder activism in the process. When he was chairman of parcel delivery service TNT Express NV, U.S. hedge fund Jana Partners called for an overhaul of the supervisory board that would have included Burgmans’s ouster, as it tried to pave the way for a takeover by a larger rival. Like with Elliott and Akzo Nobel, Burgmans fought the move, but in the end TNT was bought by FedEx Corp. after an attempt by United Parcel Service Inc failed at the hands of antitrust regulators.
“This man has personal experience with unfriendly situations,” former Akzo Nobel CEO Kees van Lede said in an interview. “He knows what happens and what can happen.”
The roller-coaster ride at TNT Express marked Burgmans, who in a March interview said he had voiced serious concerns about combining TNT with UPS but, faced with overwhelming support among shareholders and assurances that gaining antitrust approval would be easy, the deal was struck, only to fall afoul of regulators in Brussels.
He seemed determined that the same fate wouldn’t happen to Akzo Nobel.
At times, even a man of Burgmans’s experience seemed perplexed by the ferocity of the takeover battle. In the court hearing to consider his fate, he said he had never experienced “this level of aggression” even though he’s been involved in many transactions over the decades.
With management’s unwavering opposition, one possibility for PPG would have been to take the bid directly to shareholders, an option fraught with considerable risk. Since the start of 2000, only about 16 percent of hostile takeovers in the Netherlands have been completed, according to data compiled by Bloomberg.
After PPG pulled out, Akzo Nobel said it would pursue a strategy of “accelerating sustainable growth and profitability and creating two focused, high-performing businesses.” Buechner, speaking to reporters after the proposal collapsed, said the process remains on track, and that he’s in touch with shareholders to discuss his plan.
“The deal collapsed because Akzo Nobel 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 ABN Amro Bank.
Akzo Nobel has held firm to its alternative plan to break into two companies focused on chemicals and coatings. The maker of Dulux paints cited “risks and uncertainties inherent in PPG’s proposal” as it rejected the takeover offer, concluding that its own strategy offered a “superior route to growth and long-term value creation.”
PPG shareholders would have faced almost two years of regulatory uncertainty if it pursued a hostile bid for Akzo, as deals of this size always carry antitrust risk, said Ghansham Panjabi, an analyst at Robert W. Baird & Co.
“They did the right thing for shareholders,” Panjabi said in a phone interview.