AkzoNobel today announced that it had rejected a third unsolicited takeover offer submitted by PPG Industries on 24 April 2017.
As of today, the offer – €61.50 cum dividend in cash and 0.357 shares of common stock of PPG, or €97.42 per AkzoNobel share–values AkzoNobel at €26.9 billion ($29.6 billion). Akzo says the decision follows an extensive review of the proposal by its supervisory and management boards, including direct engagement with board members of PPG. AkzoNobel says its own strategy offers a superior route to growth and long-term value creation and is in the best interests of shareholders and all other stakeholders.
Akzo said that, as part of the process, Ton Büchner, CEO, and Antony Burgmans, chairman of its supervisory board, met with Michael McGarry, chairman and CEO, and Hugh Grant, lead independent director of PPG on 6 May 2017. At the time of writing, the Akzo share price had dropped 3.1% to €76.93, a deep discount to the PPG offer, in reaction to the news.
PPG says it is “disappointed” by the Akzo rejection and continues to believe its proposal is “vastly superior” in shareholder value creation and provides more certainty to employees and pensioners than Akzo’s standalone plan. It says it will review the full details of the Akzo reponse issued today. It adds the meeting with the Akzo chairman and CEO lasted less than 90 minutes and the Akzo side said they did not intend nor had the authority to negotiate, they did not share any concerns regarding PPG’s proposal, nor would they entertain any questions or discussion about their own standalone plan. The failure of the Akzo boards to fully engage with PPG “reflects a continued lack of proper governance,” PPG says.
In a quick reaction to news of the Akzo rejection, Bernstein analyst Jeremy Redenius said he believes that shareholders will challenge Akzo’s decision. He says that as so many large shareholders have spoken out in favor of negotiating with PPG, “we expect them to challenge this rejection. Most likely, Elliott [the most prominent dissident shareholder] et al will try to take them to court to force an Extraordinary General Meeting to remove the chairman of the supervisory board.” He believes there is also a slight chance PPG will attempt to go directly to shareholders with a hostile offer. PPG faces a deadline of 1 June 2017 to make a firm bid for AkzoNobel or walk away under Dutch takeover rules.
In a lengthy statement, Akzo says, “After extensive consideration, [its boards] had concluded that the interests of shareholders and other stakeholders are best-served by its own strategy to accelerate growth and value creation. This strategy sets out a clear road map for the creation of two focused and high-performing paints and coatings and specialty chemicals businesses that would enable an acceleration of growth and enhanced profitability.” The company added that it had significantly increased financial guidance for paints and coatings and specialty chemicals, committed itself to the separation of specialty chemicals within 12 months with the vast majority of net proceeds to be returned to shareholders, and promised increased shareholder returns, including a 50% higher dividend for 2017 and a €1 billion special cash dividend payable in November.
AkzoNobel says that its review and the meeting with PPG confirmed that its own strategy is better and does not contain the risks and uncertainties inherent in PPG’s proposal. PPG’s proposal had been tested on four key areas: value, certainty, timing, and stakeholder considerations. AkzoNobel’s says that, amongst other things, PPG’s proposal does not include an appropriate change of control premium and implies a value for its paints and coatings business at a multiple below recent comparable transactions. In addition, it contains risks due to its stock component, and risks loss of value from antitrust remedies and from potential leakage of value through loss of customers, key employees and partners.
AkzoNobel says that PPG’s proposal contains no commitments on timing other than generic statements, contains no explanation of how it would execute the complicated separation of individual businesses as likely required by antitrust authorities and does not address any of the inherent risks and uncertainties. It adds that recent transactions in the paints and coatings, or broader chemicals sector, suggest the transaction would face complex regulatory hurdles that could take up to 18 months to resolve.
Akzo notes that PPG has not undertaken an acquisition of this size and is unproven in terms of an integration challenge as complex as the one proposed. This acquisition would be around eight times the size of any previous acquisition by PPG and more than three times the total value of acquisitions completed by PPG during the past decade. Also, the proposed acquisition of AkzoNobel’s specialty chemicals business as part of the transaction conflicts with PPG’s stated strategy of exiting the Specialty Chemicals market.
In relation to wider stakeholder interests, Akzo says the PPG proposal fails to reflect the standards in Dutch public takeovers in relation to securing non-financial covenants, including appropriate representation and veto rights for its board to safeguard stakeholder interests. It says that PPG’s proposals affecting employees, pensions, location of headquarters, R&D and sustainability are limited, or describe existing contractual arrangements. The company adds PPG’s failure to provide adequate guarantees or adjust its projected minimum $750 million synergy target creates widespread anxiety and uncertainty across AkzoNobel’s 46,000-strong workforce.
By Natasha Alperowicz
Source: Chemical Week
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