Dutch decorative coatings giant, Akzo Nobel says it entered into discussions with US rival PPG International but that it has turned down its latest bid to buy the company because it still undervalues the company and could risk “thousands of jobs worldwide”.
Having refused to engage in talks with PPG over two previous offers, AkzoNobel yesterday announced it has declined a third unsolicited cash-and-stocks proposal worth €26.9 billion.
Akzo has, instead, concluded that its own strategy to separate out its speciality chemicals division, “offers a superior route to growth and long-term value creation and is in the best interests of shareholders and all other stakeholders”.
The Dulux parent company said its decision follows “considerable in-depth analysis” of PPG's proposal by its supervisory board and management board and inspection by its financial and legal advisors. As part of the process, Akzo Nobel CEO Ton Büchner and supervisory board chairman Antony Burgmans met with PPG lead independent director Hugh Grant and chairman and CEO Michael McGarry on May 6 to discuss the offer.
While some shareholders, led by Elliott Advisors, have put pressure on Akzo to consider PPG’s takeover bid, the company has placated investors by suggesting its own strategy for independence will be more financially beneficial. It stated that, after an “extensive review”, the strategy contains fewer risks to the company and will build on the growth momentum, as well as creating “a step change in value creation for shareholders and all other stakeholders”.
The plan is for a clear separation of specialty chemicals within 12 months - either selling or floating the division - with the vast majority of net proceeds to be returned to shareholders. It also promises increased shareholder returns, including a 50% higher dividend for 2017 and €1 billion special cash dividend payable in November.
Dismissing PPG’s latest bid – the third attempt it has made to acquire Akzo in the past few months – the company said it undervalues Akzo and has too many potential risks attached. The board said PPG's proposal was tested on four key areas: value, certainty, timing, and stakeholder considerations.
Under timing, it says PPG’s proposal “would require substantial and complex structural changes and be vulnerable to regulatory-led delays”, whereas its own strategy lays out “a clear road map” to accelerate growth and deliver shareholder returns in agreed timescales.
Other criticisms of the deal suggest that PPG’s acquisition requires “significant and value-eroding disposals in order to achieve anti-trust approval” and would lead to “disruption to business momentum and dislocation as a result of forced divestitures of integrated manufacturing facilities and supply chains”.
The Dutch firm also highlighted that the acquisition of Akzo's specialty chemicals business as part of the wider company actually conflicts with PPG’s previously-stated strategy of exiting the specialty chemicals market.
It added that PPG's statements on the range of relevant stakeholder interests “do not hold up to scrutiny or adequately address the uncertainties and risks for AkzoNobel stakeholders”, failing to address concerns affecting employees, pensions, location of headquarters, R&D and sustainability. It maintained that “PPG provides no commitments or evidence to support its assertion that employees of AkzoNobel will have any benefit under its ownership” and said that the US company’s failure to provide any guarantees or adjust its projected minimum $750 million synergy target “creates widespread anxiety and uncertainty for thousands of jobs” across the company. Global company Akzo Nobel, which owns a number of leading decorative coatings brands, including Dulux, Cuprinol, Hammerite and Sikkens, boasts a 46,000-strong workforce.
Finally, Akzo claimed that PPG's assurance that it will not relocate any of Akzo Nobel's production facilities from Europe to the US is “essentially meaningless” due to the fact that many Akzo Nobel products, by their nature, are often manufactured and distributed close to the markets they serve.
Summarising that PPG's proposal is “not in the best interests of the company, its shareholders and all other stakeholders”, the report concluded with a statement from CEO Ton Buchner, who laid out a commitment to Akzo’s independence strategy, as announced on April 19.
He said: “As part of our fiduciary duties we conducted an extensive review of the third proposal from PPG. This process included myself and Antony Burgmans meeting with the CEO and lead independent director of PPG to understand their proposal in more detail.
“The PPG proposal undervalues AkzoNobel, contains significant risks and uncertainties, makes no substantive commitments to stakeholders and demonstrates a lack of cultural understanding.
“By contrast, AkzoNobel has outlined a compelling strategy to accelerate growth and value creation which we believe will deliver significant long-term value for our shareholders and all other stakeholders. We will deliver this within a clear timeline, without the substantial level of risks and uncertainties attached to the alternative proposal.
“We have a strong track record of delivering on our commitments and are fully focused on accelerating growth momentum and enhanced profitability with the creation of two focused, high-performing businesses - paints and coatings and specialty chemicals - which will lead to a step change in growth and long-term value creation for shareholders and all other stakeholders.”