Deals

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.

Finally they met.

After months of public hostilities, the CEOs of Akzo Nobel NV and its suitor PPG Industries Inc. met privately on Saturday. PPG's lead independent director and Akzo's chairman came too.

Here was a chance to thrash out an acceptable takeover offer for the Dutch paints giant. The two sides' failure to move into constructive discussions should be a huge disappointment for both companies' shareholders.

Akzo boss Ton Buechner couldn't say no to meeting his PPG counterpart, Michael McGarry. PPG is dangling a cash-and-shares offer worth about 96.30 euros a share at today's exchange rates, 25 percent more than the current stock price. It may not be the best price for Akzo, but it is a serious one worthy of engagement.

Dwindling Chances
Akzo Nobel shares fell on Monday after the company spurned PPG for a third time
Source: Bloomberg
Intraday times are displayed in ET.

Buechner is tight-lipped about what happened in the 90-minute encounter, but says PPG offered no meaningful details to flesh out its third takeover proposal. For its part, PPG says Akzo came with no intention to negotiate.

McGarry already had Akzo's team on the ropes. Something went badly wrong with the stage management here for the summit to end with no progress. Then again, McGarry hasn't shown much charm throughout the battle. Maybe that is what was needed on this occasion.

Akzo's stance on price appears to be softening. It says PPG's latest offer just "undervalues" the company, rather than "substantially undervalues," as it has described it previously. Akzo says it wants a proper premium for a change of control.

The stock was at 77 euros on Monday and the market has had plenty of time to digest Akzo's recent defense strategy. Assume that's a fair standalone value, add a persuasive 35 percent takeover premium, and you get to an acquisition price of about 104 euros a share.

Revenue Squeeze
Akzo Nobel's annual sales growth has been shrinking in recent years
Source: Bloomberg

PPG could probably justify that if the annual financial benefits of the deal are closer to $1 billion, rather than the $750 million estimated. With shareholders receptive to a takeover, price doesn't seem the primary obstacle here.

The negotiations will center on how best to win over antitrust authorities and employees.

PPG could make an offer direct to Akzo's shareholders, confident it will win the support of many of them. But there is huge value in gaining a recommendation from the target's board: the paint maker has a poison pill defense which it would be wrong to use and which PPG could test in the courts. But PPG would surely prefer not to have that fight.

What's more, the antitrust issues involved mean an agreed deal would be far less risky.

Saturday's date went badly. At least PPG now has a list of concerns from Akzo to address, and the Dutch company has at last shown itself willing to meet. McGarry says he has issued his last invitation. If he's sensible, he will still have one more go at talks before turning hostile.

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

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