PPG Mulls Hostile Akzo Bid After Sweetening Offer to $29 Billion

(Bloomberg) -- PPG Industries Inc. Chief Executive Officer Michael McGarry said he plans to make a hostile takeover bid for Akzo Nobel NV if his sweetened offer of 26.9 billion euros ($28.8 billion) doesn’t bring the recalcitrant Dutch target to the negotiating table.

PPG would take its proposal directly to investors if there is no agreement by June, McGarry said in a telephone interview. The latest offer -- and PPG’s threat to go hostile -- ratchets up the pressure on Akzo Nobel CEO Ton Buechner just one day before an annual meeting of shareholders, some of whom are pushing for a deal. Akzo Nobel climbed the most in six weeks after saying it would “carefully review and consider” PPG’s latest offer. 

“The revised offer will be very difficult for Akzo to reject,” Jeremy Redenius, an analyst at Sanford C. Bernstein & Co., said in a note. “The most likely outcome is that Akzo grants PPG due diligence to enable a slightly improved offer.”

The latest bid provides sufficient time for Akzo to negotiate a merger agreement before June 1, which is the deadline under Dutch law for PPG to make a tender offer to shareholders, McGarry said. The U.S. company is looking for a deal that would combine the world’s two largest makers of paints and coatings amid a wave of chemical industry consolidation.

“Most people would regard that as a hostile move,” McGarry said. “It’s time to come to the table.”

Elliott Support

Elliott Management Corp., the activist investor controlled by billionaire Paul Singer, has joined with other holders to call on Akzo Nobel to reconsider after the company rejected two earlier proposals.

“There can be no assurances that a hostile bid -- if one were to materialize -- would include the same or improved protections and undertakings for Akzo Nobel shareholders,” Elliott said in a statement Monday. “Elliott therefore believes that friendly discussions now are in the best interest of all stakeholders.”

McGarry said PPG would make the bid despite the prospect of being blocked by Akzo’s stichting, a legal structure common at Dutch companies that can be deployed to defend against takeovers. If the majority of shareholders support an acquisition, so would the stichting, he said.

“We think the stichting would do what is best for all stakeholders, which is not stand in the way of the takeover of Akzo Nobel,” McGarry said.

The new unsolicited offer is 8 percent more than the most recently rejected bid and 50 percent more than Akzo Nobel’s closing price on March 8, before PPG’s interest became public. It constitutes cash and stock valued at 96.75 euros a share including a dividend that the Dutch company plans to pay, the Pittsburgh-based company said Monday in a statement.

Buechner’s Plan

Buechner last week detailed a plan to split the company in two and reward investors with a higher dividend, saying it offered more value than a takeover. PPG, the world’s largest coatings maker, said the new offer is superior to that plan.

“We are extending this one last invitation to you and the Akzo Nobel boards to reconsider your stance and to engage with us on creating extraordinary value and benefits for all of AkzoNobel’s stakeholders,” McGarry said in a letter to the Amsterdam-based company.

PPG rose 1.4 percent to $107.47 at 1:14 p.m. in New York. Akzo Nobel climbed 4.8 percent to 81.93 euros at the close in Amsterdam, the biggest gain since March 9.

PPG said it would be willing to pay a “significant” breakup fee to the Dutch company if antitrust regulators block the potential transaction. McGarry said specifics on such a fee would be negotiated with Akzo Nobel.

“PPG is ready to commit to a mutually agreed level of divestitures as may be reasonably necessary to meet those requirements,” according to the statement. Responding to Dutch government concerns about jobs, PPG also said the firm’s European production facilities wouldn’t be relocated to the U.S.

Netherlands Production

PPG also pledged the combined company’s architectural and decorative coatings, and specialty materials businesses would stay based in the Netherlands. The marine and protective coatings business would remain in both the U.K. and the Netherlands.

“They have run out of excuses on why they could not sit down with PPG,” McGarry said.

Elliott has called for a special shareholder meeting to vote on ousting Akzo Nobel Chairman Antony Burgmans. PPG isn’t a shareholder and so would have no vote, McGarry said.

“It’s a dangerous game for Akzo to completely ignore the will of the shareholders,” he said.

The prospect of transatlantic dealmaking has heightened investor interest in Akzo Nobel, which was forced to change the venue for its shareholder meeting to a local convention center that can hold 500 people. The gathering normally attracts about 50 to its headquarters.