Akzo's Third Snub of PPG Raises Prospect of Hostile Approach

(Bloomberg) -- Akzo Nobel NV rejected PPG Industries Inc.’s third takeover bid in favor of its own breakup strategy, raising the prospect that the U.S. rival will go hostile with its $29.5 billion offer for the Dutch coating and chemical company.

After taking two weeks to evaluate the bid, Akzo Nobel repeated that the proposal is flawed and riddled with risk, defying pressure from shareholders such as Elliott Management Corp. to negotiate. The U.S. company, which has threatened to take the offer directly to investors, is reviewing the response, it said in a statement on Monday that swiftly followed the rebuff and a fruitless face-to-face meeting in the Netherlands on Saturday.

As a fiercely independent Dutch company meeting its aggressive U.S. suitor at Rotterdam airport, the prospect of a breakthrough was always going to be as bleak as the surroundings. The chat between Chief Executive Officer Ton Buechner and his counterpart Michael McGarry lasted less than 90 minutes, with PPG aggrieved at Akzo Nobel’s unwillingness to negotiate, and the Dutch company wanting to be left alone to carry out a break up strategy to create two companies focused on chemicals and coatings.

Akzo's Third Snub of PPG Raises Prospect of Hostile Approach

Buechner, left, and Burgmans

Photographer: Jasper Juinen/Bloomberg

The company’s defiance and Buechner’s brief meeting with Pittsburgh-based PPG will likely rankle those investors who were pushing for more substantial talks, including Causeway Capital Management LLC. PPG bemoaned that Akzo Nobel had neither “the intent nor the authority to negotiate.”

“The battle continues,” said Blauwtulp Wealth Management’s Leo Montfrooij, who has 30 million euros ($32.8 million) of assets under management, including Akzo Nobel shares. “The dissatisfaction among large shareholders grows, and pressure was already high. I don’t exclude a fourth bid, and even bigger pressure from shareholders.”

PPG’s Move

Akzo Nobel shares fell 2.8 percent to 77.16 euros as of 12:37 p.m. in Amsterdam, the lowest since April 3. That values the company at almost 20 billion euros.

Akzo's Third Snub of PPG Raises Prospect of Hostile Approach


Photographer: Jasper Juinen/Bloomberg

Having left the meeting empty handed, the focus will be on the next move of McGarry and Hugh Grant, PPG’s lead independent director who is also the CEO of Monsanto Co. McGarry has said he plans to make a hostile takeover bid if his reluctant target doesn’t come to the negotiating table and hammer out an agreement by June 1. On Monday, PPG criticized Akzo Nobel for being blinkered, unwilling to discuss anything beyond details of the proposal already tabled.

For his part, Buechner said the Dutch company’s executives “went into the meeting with an open mind.” The talks were private and cordial, and therefore it would be inappropriate to provide details, he added. “We considered it beneficial.”

The extensive review and the meeting with PPG confirmed to Akzo Nobel that its own strategy is better and does not contain the risks and uncertainties inherent in PPG’s proposal, Akzo Nobel said in a statement. PPG’s proposal also undervalues the company and doesn’t include an “appropriate change of control premium.”

Akzo to Split

Buechner has proposed splitting the Amsterdam-based company in two and rewarding investors with a higher dividend. PPG, the world’s largest coatings maker, said the latest bid is superior to that plan.

Under Akzo Nobel’s road map, the company plans to create two focused businesses -- Paints and Coatings and Specialty Chemicals. The paintmaker also intends to “significantly” increase financial guidance for these two businesses, and boost shareholder returns, including a 50 percent higher dividend for 2017 and 1 billion-euro special cash dividend payable in November.

“Akzo management now has to deliver,” said Jeremy Redenius, an analyst at Bernstein. “As so many large shareholders have spoken out in favor of a negotiation with PPG, we expect them to challenge this rejection. There is also a slight chance PPG will attempt to go directly to shareholders.”

Elliott has called for the dismissal of Chairman Burgmans. The Dutch company previously rejected the hedge fund’s request to put the motion to a vote at an extraordinary shareholders’ meeting, saying it would be “irresponsible, disproportionate, damaging and not in the best interests of the company.” Elliott declined to comment on Monday.

PPG’s proposal contains no commitments on timings to value creation, Akzo Nobel said Monday. The rival also gives “no evidence” to support its assertion that employees of Akzo Nobel will have any benefit under its ownership, and has created “widespread anxiety and uncertainty” for thousands of jobs across the company’s 46,000-strong workforce, it said.

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