US PPG sweetens offer for Dutch AkzoNobel

Focus article by Niall Swan

LONDON (ICIS)–PPG Industries has made its third bid to Dutch producer AkzoNobel, increasing its offer by €6.75 per share (+8%) from its second offer on 22 March to stand at €96.75 per share, the US paints and coatings company said on Monday.

The latest bid values the Dutch specialty chemicals and paints producer at approximately €24.6bn and represents a premium of 50% over its unaffected closing price of €64.42 on 8 March 2017. The price represents a 12.8x multiple on enterprise value against EBITDA, based on Akzo’s reported 2016 financials, PPG added.

A merger between the two companies would generate annual synergies worth $750m, the company claimed.

“We believe that our revised proposal is vastly superior to AkzoNobel’s new standalone plan, as articulated on 19 April 2017. As evidenced by the decline in the company’s stock price since your investor update, the capital markets have not recognized any additional value from your new standalone plan,” PPG said in a letter to AkzoNobel CEO Ton Buchner and chairman of its supervisory board Antony Burgmans.

“In addition, AkzoNobel’s shareholders have reacted favourably to the issuance of PPG shares as part of the consideration and are excited by the opportunity to participate in and benefit from the combined company’s future performance.”

Commenting further on AkzoNobel’s future plans, which it announced at an investor day on 19 April, PPG said that it fails to provide any specific commitments to AkzoNobel’s various stakeholders, which PPG is willing to make.

The Pennsylvania-based firm listed a number of risks, which it feels will arise from AkzoNobel’s stated plans to hive off its specialty chemicals division through an initial public offering or a sale.

“[It] creates two smaller, unproven standalone companies with uncertain market valuations and substantial risks for reaching your 2020 guidance, especially given many of the annual targets that you have identified have not been achieved by AkzoNobel previously,” PPG said.

PPG also said that AkzoNobel’s plans will require substantial restructuring and could potentially decrease free cash flow.

AkzoNobel has so far refused to engage in discussions with PPG, saying that it remains committed to unlocking the value of the company itself, a belief which it reiterated at the investor day last week.

The third bid also addresses a number of the issues which AkzoNobel had previously mentioned when explaining its decision to reject PPG’s approach, including that of possible divestments due to the need to gain approval from antitrust authorities, as well as a commitment to maintaining AkzoNobel’s ties to the Netherlands.

In the letter, PPG Chairman and Chief Executive Officer Michael McGarry said, “We are extending this one last invitation to you and the AkzoNobel boards to reconsider your stance and to engage with us on creating extraordinary value and benefits for all of AkzoNobel’s stakeholders.

“Our revised proposal represents a second increase in price along with significant and highly-specific commitments that we are confident AkzoNobel’s stakeholders will find compelling. We stand ready to work with you expeditiously to complete a targeted due diligence review and to negotiate a definitive agreement for the combination.”

Jeremy Redenius of research analysts Bernstein continued its support for PPG’s bid, saying: “We think the revised offer will be very difficult for Akzo to reject. One by one, PPG seem to be addressing each of the issues Akzo has raised. We think the most likely outcome is that Akzo grants PPG due diligence to enable a slightly improved offer.”

AkzoNobel said that it is in the process of considering the revised proposal.

“In accordance with its fiduciary duties and acting under the Dutch governance code the Board of Management and Supervisory Board of AkzoNobel will carefully review and consider this proposal,” the company said in a note.

AkzoNobel’s share price rocketed in early morning trading in the wake of the latest offer to stand at €82.42 per share at 12.30 BST, its highest point in over a decade.

(updates throughout)