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Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

(Corrected )

Akzo Nobel NV CEO Ton Buechner thinks the Dutch chemicals giant is worth more than the 22.4 billion euros ($24.2 billion) PPG Industries Inc. is prepared to pay.

If Buechner is so confident, he should be held directly accountable. The board should link the bulk of his variable pay to getting the value of the group comfortably above that level.

On Wednesday, Akzo rejected a second proposal from its U.S. competitor worth about 88.72 euros a share, a 7 percent increase on the initial approach.

That was the right response, even though some frustrated shareholders are ardently pushing Buechner to enter talks with the bidder.

Treading Water
Before Akzo rejected the bid, its shares had fallen over the past two years
Source: Bloomberg

On price alone, PPG's proposal remains unacceptable. Including net debt, it values Akzo at 11 times estimated Ebitda. That's no more than the average of its publicly traded peers, and compares poorly with the typical multiple of 15 in the biggest recent chemicals deals.

There is room for a higher bid. Investors are after 95 euros a share, according to Bernstein research. An offer at that level would cost 26 billion euros, including debt. The post-tax return on the acquisition would be a reasonable 8 percent by 2020 once you factor in the potential $1 billion of synergies. Some analysts think Akzo could get there on its own.

PPG would struggle to offer more cash without pushing the combined company's leverage to an awkward level, hence it sweetened the stock component of its latest offer more than the cash element. A new offer would need yet more stock, and that means the investment story of the enlarged PPG would need to be convincing to Akzo's board and long-term shareholders.

The U.S. bidder could address Akzo's concerns on this score. One relates to job losses. Sadly, that looks to be a reality of the situation -- deal or no deal. Akzo has been cutting costs for the last two years. It could do more. Its operating margin is 11 percent while PPG's is nearly 15 percent. PPG could give assurances that cuts will be fairly split between the companies.

The tougher issue is what Akzo calls a "culture gap" between the companies. Can that be bridged? Almost certainly not. Is that a deal breaker? No, so long as the price is a knockout and PPG can demonstrate it isn't going to wreck what it acquires.

It is for PPG to address these issues on its own initiative. 

But Buechner can't sit still. He needs to prove his team is the right one to extract the value in the company.

Akzo promises new guidance. It needs to go further. There need to be hard and stretching targets. It won't be enough for Buechner simply to put his name by these. His pay needs to be directly linked to achieving them, and getting the shares to the level shareholders could have expected from a deal over the medium term.

Buechner was paid 3.4 million euros in 2015, after he missed out on the part of his bonus linked to shareholder returns. Akzo's total shareholder return between 2013 and 2015 put it eighth in the 11-strong peer group used by the company's own remuneration committee. Last year, the CEO's pay totaled 3.5 million euros, even as Akzo's TSR ranking slid to ninth.

If Akzo doesn't get a cracking offer, Buechner's shareholders need to feel that at least he is in the mire with them.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Corrects penultimate paragraph to show Buechner's pay was for 2015 and adds 2016 remuneration figures)

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net