PPG Chief Open to Making Hostile Bid After Akzo Spurns OfferBy
CEO McGarry, CFO Morales met analysts, media in Amsterdam
PPG executives sought to allay fears over job reductions
PPG Industries Inc. Chief Executive Officer Michael McGarry said making a hostile bid for Akzo Nobel NV remains an option after the Dutch coatings and paint company spurned its sweetened $24.2 billion takeover offer.
“We are not taking any options off the table,” McGarry said in an interview Thursday, when asked whether a hostile bid could be ruled out. He spoke in Amsterdam following a press conference during which he highlighted the merits of bringing the two companies together. “Right now we are very interested in a collaborative discussion.”
The CEO and Chief Financial Officer Vincent Morales also presented their case to analysts and said they were expecting to meet investors and government officials during a two-day visit to the Dutch capital where Akzo Nobel is based. They said they had received no word from their counterparts at Akzo on getting together.
“It was shocking that an enhanced proposal was turned down in basically a day,” McGarry said. The executives added they have been “surprised and disappointed” that Akzo hasn’t engaged in talks.
PPG hadn’t approached the company for a meeting, Akzo spokesman Leslie McGibbon said earlier in the day. In rebuffing PPG’s offer Wednesday, the company said it didn’t warrant any engagement. A Dutch economy ministry official will meet with the PPG CEO on Friday, according to a government spokesman.
In piling more pressure on Akzo, McGarry is seeking to garner support from hedge funds and other shareholders frustrated with Chief Executive Officer Ton Buechner’s defiant stance against PPG’s overtures. Buechner maintains his plan to sell chemical operations to focus on coatings and paint will create more value and carries fewer risks than PPG’s sweetened 88.72 euro-a-share offer it received March 20.
Akzo shares rose 2.9 percent to 77.94 euros in Amsterdam.
Calls for Akzo to start talks with PPG intensified. Elliott Management Corp., the hedge fund founded by billionaire Paul Singer, said it was disappointed the Akzo CEO won’t meet with its U.S. competitor in Amsterdam.
“The fact that Mr. Buechner has so far failed to take this opportunity to meet and engage with PPG is hard to reconcile with his fiduciary duties,” Elliott said in a statement. “This failure to engage is made all the more disappointing by the clear message emanating from Akzo Nobel’s shareholder base.”
While PPG’s higher bid remains inadequate, it’s at a level where Akzo management should engage discussions, said Causeway Capital Management LLC, whose 6.8 percent stake makes it the largest investor according to Bloomberg data.
“We believe combining Akzo Nobel and PPG would create a stronger company, and lead to improved prospects for both shareholders and employees,” Causeway Chief Executive Officer Sarah Ketterer wrote in a March 22 letter to the boards of the Dutch company.
The PPG executives on Thursday said McGarry had met with Buechner about the offer, although not since Akzo twice rejected its overtures.
“When we approached them, at that time, they only had one strategy, which is to keep the whole company together,” McGarry said in the interview. “They reacted to us approaching them, that’s when they went on to say, ‘Oh we’re accelerating the divestiture of the special chemicals business,’ but in reality they had no desire to do that.”
PPG plans to “keep everything” in Akzo, although would do whatever regulators demanded to get a deal done, the CEO said.
PPG also responded to Dutch government and union criticism of potential for job losses following a takeover. Savings could be generated from areas other than job cuts, such as consolidating warehouses, McGarry said. He presented a video interview with a former Akzo worker who had joined PPG via a deal in 2012 as evidence a cultural fit is possible between the two companies.
“While Akzo management does not seem ready to engage PPG now, we’d note that Akzo may face shareholder pressure to do so should PPG make the offer more attractive from here,” Citigroup analysts including Andrew Benson said in a note.
PPG’s approach has sparked criticism from the Dutch government. Economy Minister Henk Kamp said Wednesday Akzo Nobel’s boards responded in a “powerful way” to PPG’s second bid, adding that a takeover would call into question headquarters in Amsterdam as well as research and development and other sites elsewhere in the Netherlands. He won’t be meeting with PPG executives, a government spokesman said.
Dutch politicians are “very concerned” about the PPG bid because of potential job losses in the event of a takeover, according to Buechner.
The Dutch provinces of Gelderland, Overijssel, Groningen and South-Holland won’t accept the invitation to talk with PPG management, Dutch news agency ANP reported, citing a spokesman for Gelderland.
McGarry first broached the idea of a deal with an unsuspecting Buechner over a coffee in Amsterdam, according to a person familiar with the matter. For the Akzo CEO, events took a surprise turn when McGarry laid out on the table a six-page document outlining the proposal.
— With assistance by John Gittelsohn, William Canny, and Anne Van Der Schoot