US PPG still ‘hopeful’ as Akzo rejects revised $26.3bn bid

HOUSTON (ICIS)–US coatings major PPG remains “hopeful” about engaging AkzoNobel in discussions, despite AkzoNobel’s rejection earlier on Wednesday of PPG’s increased takeover bid for the Dutch coatings and chemicals firm, it said in a statement.

“We are hopeful that AkzoNobel engages with us promptly in order to further discuss and explore the benefits of a combination for its stakeholders, including substantial commitments regarding employees in The Netherlands, research and development and sustainability”, said Michael McGarry, chairman and CEO of PPG.

Under the revised bid, worth about $26.3bn, PPG offered to acquire AkzoNobel for €90.00 (cum dividend) per ordinary share, comprised of cash of €57.50 and 0.331 share of PPG common stock, it said.

The revised bid reflects an increase of €7.00/share from PPG’s initial offer. It would provide a 40% premium to AkzoNobel shareholders, based on AkzoNobel’s unaffected closing stock price of €64.42/share on 8 March, and is 39% above AkzoNobel’s 52-week high stock price prior to disclosure of PPG’s earlier proposal, PPG said.

Including the assumption of net debt and minority interests, the transaction is valued at about €24.5bn, or $26.3bn, it added.

PPG said that it continues to believe strongly that a combination of the two companies presents “a unique opportunity to build on the heritage and legacies of the respective businesses, and that the combination is in the best interest of both companies’ shareholders and other stakeholders.”

The revised proposal reflected annual run rate synergies of at least $750m, which could be achieved from a combination of the two companies, it said.

A substantial portion of these synergies relate to raw material purchasing, supply-chain management and optimising distribution networks, based upon PPG’s experience in acquiring AkzoNobel’s North American Decorative Coatings business, it added.

“We look forward to the opportunity to engage in dialogue with AkzoNobel leadership, members of its supervisory board and other stakeholders to further discuss the merits of this revised proposal, negotiate a transaction and work together towards an agreement on mutually acceptable terms,” McGarry said.

“We are respectful of the questions and concerns that have been raised and look forward to addressing these in a collaborative manner,” he said.

PPG said that it was ready to move forward swiftly, and that it was in a position to complete a confirmatory due diligence simultaneously with the negotiation of a merger protocol with a view to come to a recommended transaction within a short period of time.

But it added that at this time no agreement has been reached and there can be no assurances that any transaction will result from its proposal.

AkzoNobel earlier on Wednesday, in rejecting PPG’s second unsolicited takeover bid, expressed concerns about how the US-based company approached the offer.

AkzoNobel CEO Ton Buchner cited a “significant culture gap” between the two companies.

He was particularly critical of the timing of PPG’s bid, saying: “The proposal came in the midst of the Dutch election and caused a lot of disturbance on the ground. It created quite an uproar.”

Other concerns expressed by Buchner included the possibility of significant job losses due to antitrust regulations and synergy issues as well as the fact that the second offer did not address any of the concerns expressed by shareholders, with the only difference being a higher price tag.

Under the revised proposal for each AkzoNobel share, the PPG was offering to pay €88.72 (adjusted for final dividend) consisting of €56.22 (adjusted for final dividend) in cash and 0.331 PPG shares, as at 20 March 2017.

However, AkzoNobel felt that, among many other concerns, the offer did not “reflect the current and future value of AkzoNobel”, it said in a statement.

“This proposal significantly fails to recognize the value of AkzoNobel. Our Boards do not believe it is in the best interest of AkzoNobel’s stakeholders, including our shareholders, customers and employees. That is why we have rejected it unanimously,” Buchner said in the statement.

Buchner reaffirmed AkzoNobel’s commitment to unlock the value of the company itself, saying: “We are executing our plan, including the creation of two focused businesses and new cost structure, and believe this gives us a strong platform for continued profitability and long term value creation for all our stakeholders with substantially less execution risks.”

Commenting on AkzoNobel’s future plans for its specialty chemicals business, which it is currently exploring alternative ownership structures for, Buchner said that a variety of options were being examined but confirmed a decision is yet to be made.

Jeremy Redenius of financial analyst Bernstein believes that PPG’s bid may have undershot, saying that it “falls well short of the €95 per share that Akzo’s share investors are looking for.”

“We think PPG knew they need a second bid in the €90s to get engagement from Akzo and elected to not be aggressive enough, which calls into question their desire to return with a yet higher offer.”

After PPG’s initial bid was rejected by AkzoNobel on 9 March, Bernstein said that it “could see the merit of a tie-up with PPG,” and added that AkzoNobel is now “under greater pressure to perform”.

AkzoNobel shares were down by 3.7% in morning trading against yesterday’s close, with shares valued at €74.15 as of 11:30am UK time.

Additional reporting by Niall Swan and Tahir Ikram