Akzo Nobel shareholders urge takeover talks with rival PPG
Call follows Dutch company rejecting revised €22.4bn bid from rival US group
Three large shareholders in Akzo Nobel have urged the company to enter into talks with rival PPG Industries after the Dutch paints and chemicals group rejected a revised €22.4bn takeover attempt from its US rival.
The latest unsolicited bid from PPG represented a €1.5bn improvement on an earlier offer, made on March 9, but Akzo Nobel’s two boards again rejected it unanimously.
Akzo Nobel’s instant rebuff goes against the tide of large-scale consolidation sweeping the broader chemicals sector and drew criticism from several investors, with one warning that the management was “losing credibility”.
The maker of Dulux paint said the second offer, worth €88.72 per share and made on March 20, undervalued the company and its prospects. It also said the proposal did not address “the significant uncertainties and risks for shareholders and other stakeholders” and warned a tie-up would lead to substantial divestitures on competition grounds, as well as job cuts.
Combining the groups would be likely to attract stiff scrutiny from antitrust regulators because it would create a dominant group in the $130bn global paints and coatings market.
Activist investor Elliott Advisors, a top five shareholder with more than 3 per cent of the stock, said that while the offer price was inadequate, it provided a “credible basis for engagement”.
The hedge fund urged Akzo Nobel’s management “to engage with PPG immediately” to determine whether the US group was prepared to bid higher and address all relevant stakeholder considerations.
Two other top-20 shareholders echoed Elliott’s position, suggesting that Akzo Nobel’s chief executive, Ton Büchner, faces rising investor dissent as he attempts to see off a hostile buyout of one of Europe’s oldest industrial companies.
“We see strong logic in a combination of Akzo Nobel and PPG and the potential benefits this offers all stakeholders. Akzo needs to recognise this and engage,” said David Dudding, portfolio manager at Columbia Threadneedle.
John Bennett, head of European equities at Henderson Global Investors, said Akzo Nobel should “hear out” PPG on its proposal. “If you don’t think it’s right, present a recommendation to the board and shareholders [to vote on].”
“The management team is rapidly losing credibility,” he added.
VEB, an influential Dutch shareholder group, also called for the company to consider the deal. “They can’t just shut the door. I can understand them saying it is too low. But when a second bid comes in from a serious player, then you should talk to each other,” said Paul Koster, its director.
PPG’s new cash and stock offer was worth a total of €88.72 per share. Of this, €56.22 was in cash and 0.331 in PPG shares. Shares in Akzo Nobel fell 1.1 per cent to €75.75 on Wednesday.
However, there was some confusion over the actual value of the bid. PPG put the offer at €90 per share including a dividend, for a total value of €22.70, but Akzo Nobel said that included a payout which shareholders would receive regardless.
PPG’s advance has attracted criticism from politicians in the Netherlands, who are worried about job losses and the country’s corporate champions being picked off by larger rivals.
Their response was especially fierce as PPG’s first bid came during an election campaign and just weeks after Kraft-Heinz’s failed bid for Unilever, the Anglo-Dutch consumer group. Dismissing the new bid on Wednesday, Akzo Nobel’s management complained that there was a “significant culture gap” between the two companies.
In his defence, Mr Büchner said the company had “listened carefully” to shareholders and taken their views into consideration when arriving at the decision.
Analysts were doubtful whether PPG would return with a third offer.
Jeremy Redenius, analyst at Bernstein, said that a survey of investors carried out by the brokerage found investors had been hoping for €95 a share.
“We think PPG knew they needed a second bid in the €90s to get engagement from Akzo (eg, opportunity to do due diligence) and elected to not be aggressive enough, which calls into question their desire to return with a yet higher offer,” he wrote in a note.
Even so, the latest bid will pile pressure on Mr Büchner to explain his plans for the company, which is planning to sell or float its speciality chemicals business to focus on paints and industrial coatings.
During five years at the helm of the group, which traces its roots to Swedish inventor Alfred Nobel, Mr Büchner has concentrated on making Akzo Nobel a more efficient operation.
But analysts say the company’s stock trades at an earnings multiple discount to its peers, a situation that can make it more susceptible to takeover attempts.
If PPG returns with a higher bid, the Dutch group’s corporate governance has a decades-old provision that creates a foundation with priority shares, which acts as a poison pill to protect the incumbent board and prevent a hostile takeover.
But Elliott suggested it might attempt to convene an extraordinary general meeting, at which members of the management and supervisory boards can be voted out, should Akzo Nobel not accede to the shareholders’ requests for engagement.