Akzo Nobel mulls breakup after rejecting PPG’s $22bn offer

Bloomberg

Akzo Nobel NV, Europe’s largest coatings company, rejected an unsolicited 20.9 billion-euro ($22.1 billion) takeover bid from rival PPG Industries Inc. and said it may separate its specialty chemicals business to boost the stock price.
PPG’s bid, worth 83 euros a share at the end of February, substantially undervalued the company, Amsterdam-based Akzo said in a state-
ment on Thursday, confirming a Bloomberg News report that the US company was exploring a deal.
PPG will carefully evaluate its position following the rejection of what it called an “attractive and comprehensive proposal” for a combination, the Pittsburgh-based company said in a statement. The bid is 29 percent above Akzo’s closing level on Wednesday. Various “alternative ownership structures” are being considered for specialty chemicals, including a spinoff, Akzo said. Akzo shares rose the most in more than eight years.
Spurred on by PPG’s approach, Chief Executive Officer Ton Buechner is taking head-on the longstanding question whether Akzo Nobel would fare better as a focused coatings company, without the distraction of making chemicals ranging from commodities including chlorine to cosmetic ingredients. The specialty chemicals business had sales of 4.8 billion euros last year, accounting for 34 percent of revenue.
NATIONAL ELECTIONS
“Akzo Nobel has enjoyed a record performance in recent years in terms of profitability and has made significant strategic progress, allowing us to take this decision,” Buechner said in the statement.
With national elections in the Netherlands next week, the offer adds to concern among Dutch politicians that the nation’s companies are vulnerable to hostile takeovers. Unilever, the Anglo-Dutch consumer products company, last month spurned an unsolicited, $143 billion approach from Kraft Heinz Co. PPG’s offer isn’t in the interest of the Netherlands, Dutch Economy Minister Henk Kamp said.
The Netherlands should better guarantee the country’s strategic economic interests, Finance Minister Jeroen Dijsselbloem was cited as saying by Het Financieele Dagblad on Tuesday. He said 11 of 25 members of the benchmark stock index are insufficiently protected against hostile foreign takeovers.
A friendly deal may be PPG’s best bet as Akzo has in place a Dutch stichting, or foundation, which owns priority shares and can be used as a safeguard against a hostile takeover.

‘SERIOUS RISKS’
PPG’s proposal carries “serious risks and uncertainties,” Buechner said. One of the CEO’s first major strategic decisions upon taking the helm in 2012 was to execute on the sale of Akzo Nobel’s US decorative paints business to PPG for about $1 billion. Now the US company is returning with an offer for the rest. The US company offered 54 euros in cash and 0.3 of its shares for each Akzo share, the statement said.
Akzo said both the management and supervisory boards, along with financial and legal advisers, reviewed the offer before coming to the conclusion that it fell short. The combined company also would have had too much debt, Akzo said.
While Buechner said he’s “fully committed” to rejecting PPG’s approach as it stands, he declined to be drawn on whether the door is open to discussions with its suitor should it return with a better offer. Whether there are attractive parts of PPG to combine with “is not a topic for today,” he said on a call with reporters. “Any future proposition is pure speculation.”

NOT ENCOURAGED
Akzo said it didn’t initiate, nor encourage, or entertain any conversations with PPG. PPG, which has 156 factories worldwide supplying paints, specialty materials and fiber glass, is the world’s biggest producer of coatings for autos and aerospace and No. 2 in architectural and packaging markets, according to a company presentation.
Many PPG investors see the company’s relatively low leverage as an opportunity to make acquisitions, Mike Harrison, a Chicago-based analyst at Seaport Global Holdings LLC, wrote in a note to clients.
PPG’s net debt is roughly equal to its earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. A cash purchase of Akzo would boost net debt to about 4.3 times Ebitda, excluding any cost savings, Harrison said in the note.
Price wasn’t the only issue with PPG’s approach, as a combination would threaten research and development, thousands of jobs, as well as customer relationships, Buechner said. In any case, the expected synergies from a combination would be compromised by antitrust demands, he added.