Akzo rejects $22bn offer, will pursue spin offs

May 2017 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Dutch paints and coatings manufacturer AkzoNobel NV rejected two unsolicited offers from US rival PPG Industries Inc in March, saying that the firm hoped to “unlock value” in other ways, chiefly by spinning off its chemicals unit.

According to a statement released by Akzo, PPG’s first bid for the company was worth around €83 per share, however that offer substantially undervalued the company. The offer was 29 percent above Akzo’s closing price on Wednesday 9 March, the day before the offer was made public.

“This proposal significantly fails to recognise 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,” said Ton Büchner, chief executive of AkzoNobel. “We are convinced that AkzoNobel is best placed to unlock the value within our company ourselves. 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.”

On 20 March, Akzo rejected a second, improved offer for the company. According to a statement released by Akzo on 22 March, “The proposal not only fails to reflect the current and future value of Akzo Nobel, it also neglects to address the significant uncertainties and risks for shareholders and other stakeholders”. The revised proposal was worth €88.72 (adjusted for final dividend) consisting of €56.22 in cash and 0.331 PPG shares, as at 20 March 2017, per AkzoNobel share held.

PPG’s revised offer would have provided a 40 percent premium to AkzoNobel shareholders based on the company’s closing stock price of €64.42 on 8 March 2017, and is 39 percent above Akzo’s 52-week high stock price prior to disclosure of PPG’s earlier proposal.

“A combination of PPG and AkzoNobel would result in enhanced financial growth prospects for the combined company in the coming years, which will also accrue to the benefit of all stakeholders of the combined business,” said Michael McGarry, chairman and chief executive of PPG. “PPG has continued to carefully consider the interests of all AkzoNobel stakeholders, including shareholders, employees, customers and the communities it serves. 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. We are respectful of the questions and concerns that have been raised and look forward to addressing these in a collaborative manner. 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.”

Following news of the second rejection, shares in AkzoNobel slipped 1.3 percent to €75.59. “We believe the revised proposal presents an opportunity for AkzoNobel’s shareholders to realise extraordinary value, by any measure, for their shares in AkzoNobel. It provides them with a premium valuation and the opportunity to receive substantial and immediate cash consideration and participate in the success of the enterprise through ownership of shares in the combined company,” said Mr McGarry.

Though prognostication in such deals can be difficult, AkzoNobel seem likely to reject any additional overtures from PPG. After the first offer, Mr Büchner noted that Akzo had intended to announce plans to sell or float the specialty chemicals division later this year, but the firm brought forward that announcement in light of PPG’s offer. The specialty chemicals business could potentially generate around €10bn in a sale, and probably will attract a number of private equity firms, as well as industry interest. Akzo said it will consider various “alternative ownership structures” for the unit going forward.

Richard Summerfield