Call it a truce, if not a peace. Akzo Nobel NV, the maker of Dulux paint and chlorine, has agreed to cease hostilities with Elliott Advisors, the activist hedge fund that has waged a months-long courtroom battle to remove the company's chairman.
It's a welcome development: both sides will save face, smoothing the path for incoming CEO Thierry Vanlancker to deliver promised cash payouts to investors. But this isn't an unconditional peace. Akzo will come under pressure to over-deliver if it wants to keep suitors like PPG Industries Inc. from the door.
Litigation between the hedge fund and the Dutch company will be suspended for at least three months, and Elliott will now support Vanlancker's appointment as CEO at a shareholder meeting next month. Both sides will support Akzo's plans to break off its specialty chemicals operation, a move Elliott had previously criticized as being riskier and less attractive than a $29 billion approach from PPG -- a bidder repeatedly rebuffed by Akzo's managers.
This is hardly a defeat for Elliott. It's true that the activist investor has had little luck in the courts, losing its second lawsuit aimed at removing chairman Antony Burgmans earlier this month. It's also unlikely that the PPG bid it supported will return, given the increasingly protectionist political climate.
But Elliott played its part in pressuring Akzo's management to focus on pumping up shareholder returns. The company has pledged to pay a 1 billion-euro special dividend and a higher regular dividend under its break-up strategy.
Akzo will also add three extra members to its supervisory board. With a newly installed CEO and the current chairman set to retire next year, any future bidder will engage with a different group of personalities.
The legal truce is due to last "at least" three months -- but that still leaves open the possibility of hostilities resuming if Akzo strays from its pledge to wring the most value from a full separation of the specialty chemicals business. It could also happen if Vanlancker were to disappoint on the operating front, where margins are under pressure from rising raw-materials costs. Analysts at UBS are skeptical Akzo will hit its profit targets this year.
The pressure is still there and, for now, so is Elliott. The victors look set to be Akzo Nobel's shareholders.
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