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.

Anyone for opera? That seems to be Akzo Nobel NV's new strategy for patching up relations with its miffed shareholders.

The Dutch paintmaker has hired the elder statesman of British corporate broking, David Mayhew, and a team from JPMorgan Cazenove. Corporate brokers once oiled relationships between boards and investors with things like tickets to Glyndebourne and the rest of the once-aristocratic season.

Divergent
Akzo's results failed to reverse the stock's recent under-performance
Source: Bloomberg

The industry would argue that's all been replaced with big spreadsheets detailing target investors and their views. Not to mention the effect the dead hand of compliance has had on corporate entertaining. Even so, it's going to be tough for even for a diplomat of Mayhew's standing to secure a truce between Akzo and its angry shareholders.

To re-cap, Akzo caused a stink by rebuffing a $29 billion takeover approach from U.S. rival PPG Industries Inc. back in May. Investors, chiefly hedge fund Elliott Advisors, were incensed. Akzo justified its stance with promises to hive off its specialty chemical unit, a special dividend and some punchy targets that most analysts don't believe.

Marginal Loss
Akzo is struggling to lift operating margins as raw material costs bite
Source: Company presentation

Operationally, things aren't going well. First-half results were below already tepid expectations. The return on sales fell. Akzo, as predicted, is feeling the pinch from higher raw material costs which it's struggling to pass on to customers. That may be a transient phenomenon -- Akzo is sticking to a punchy profit target for the full year -- but it's not a good look right now.

Contrast this with consumer goods giant Unilever NV, which like Akzo swatted away an unwelcome takeover approach earlier this year. Its margin improvement in the first half of 2017 was bigger than in the previous eight years combined, according to UBS research. That's how to justify a takeover rejection.

Akzo is doing some other seemingly shareholder-friendly measures. Executive pay will be linked to hitting the performance pledges set out in its defense strategy. There will be a debate about the decision to rebuff PPG when shareholders meet to ratify the appointment of new CEO Thierry Vanlancker.

As so often with Akzo, it's one step forward and two steps back.

Investors will meet in late September, just before a court hears Elliott's demands for a shareholder vote on ousting chairman Antony Burgmans. It might strengthen Akzo's case in court to say it's allowed investors a debate. But by calling the meeting so hastily, Akzo is depriving investors of the right to add things to the agenda under its articles of association.

Again, Akzo gives the impression of doing things for the benefit of its supervisory board rather than its shareholders.

It looks like it will be a long evening at the opera.

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