Photographer: Chris Ratcliffe/Bloomberg

PPG, Elliott Call Akzo's Breakup Plan Riskier Than Takeover

  • Dutch paintmaker pledges EU1.6 billion in extra dividends
  • PPG, Elliott says Akzo’s strategy plan creates uncertainty

A war of words intensified between Akzo Nobel NV and its U.S. suitor, PPG Industries Inc., after PPG called a new strategic plan unveiled by the Dutch paintmaker riskier and less valuable to shareholders than its own $24 billion takeover approach.

The Amsterdam-based company, in its bid to fend off PPG, proposed to break itself up by carving out its specialty chemicals division within 12 months and returning 1.6 billion euros ($1.7 billion) to shareholders. Akzo Nobel’s payout for this year will include a 1 billion-euro special dividend as well as a 50 percent rise in the regular one.

In response, PPG said the proposal would create more uncertainty for stakeholders because it would create two “smaller, unproven companies and result in additional restructuring.”

Activist Akzo shareholder Elliott Advisors, which has mounted a campaign for the companies to begin talks, came down on the side of PPG, saying the certainty of the U.S. firm’s bid outweighs risks the Dutch manufacturer won’t meet new targets.

The swift condemnation by PPG and Elliott shows Akzo Nobel Chief Executive Officer Ton Buechner faces a tough sell in his battle against Pittsburgh-based PPG. The 51-year-old Dutch national needs to convince shareholders urging him to engage with the U.S. suitor after Akzo Nobel rejected as too low a second and sweetened proposal of 88.72 euros a share. The CEO reiterated that stance during a presentation in London on Wednesday to analysts and investors.

Akzo Nobel CEO Ton Buchner Says Break-Up Plan Is Less Risky Than PPG Offer.

Source: Bloomberg

“This is the better plan,” Buechner said in an interview with Bloomberg TV. “Other plans would actually have significant time required for regulatory approval.”

While the company’s pledge for extra cash for shareholders is promising, its new earnings goals “are a huge stretch,” according to Bernstein analyst Jeremy Redenius. He estimated they could lift Akzo Nobel’s value to between 85 euros and 93 euros a share, although “Buechner will have a huge challenge” to show how the company can get there.

Akzo Nobel shares were unchanged at 78.34 euros in Amsterdam trading as of 4:24 p.m. local time. This values the company at 20 billion euros.

“The increase in financial guidance is much more substantial than I had expected,” said Joost van Beek, an analyst at Theodoor Gilissen Bankiers. “It’s all about the explanation, how dependent are they of a solid external environment, and what would they be able to reach internally.”

Recent developments in the back and forth between the two companies have taken a more hostile tone, with PPG CEO Michael McGarry this week appealing directly to Akzo Nobel shareholders with his rationale for the deal. PPG’s proposal would create more value as it provides an immediate cash payout far in excess of AkzoNobel’s special dividend and is supplemented with PPG shares, the company said Wednesday.

For its part, Elliott is seeking to force a special shareholders’ meeting to oust the company’s chairman. Buechner said a response to Elliott’s demand will be made “soon.”

At the London meeting, an Elliott representative faulted Akzo Nobel’s board for failing in its corporate governance duties by not providing a detailed comparison of the two competing plans for the company. The Akzo Nobel CEO rejected the charge, saying his presentation is “about our plan on value going forward.”

The Dutch maker of coatings said it will run a dual-track process for the separation of the specialty chemicals business to consider a listed entity or a sale. Akzo Nobel also outlined 150 million euros in annual cost savings and an extra 50 million euros in savings from the proposed carve out.

Unlock Value

Separation of specialty chemicals will unlock value and allow easier comparisons with peers, Buechner said, adding the division won’t be sold in separate parts. He also said Akzo Nobel’s new plan might allow for smaller bolt-on acquisitions, although bigger deals would be excluded in the short term.

Akzo Nobel reported better-than-expected results in the first quarter. Earnings before interest and taxes through March jumped 13 percent to 376 million euros, versus an average estimate of analysts surveyed by Bloomberg of 338.8 million euros.

PPG has outlined $750 million in cost savings from a combination with Akzo Nobel at a time when prices for raw materials including the widely used TiO2 white pigment are on the increase. Akzo Nobel Chief Financial Officer Maelys Castella said the company is putting in place its own savings measures to deal with inflation.

The Dutch maker of Dulux and Sikkens paint set a target of 14 percent return on sales by 2020, including 15 percent for its paint and coatings business and 16 percent for specialty chemicals, it said, predicting its third straight year of record profit.

— With assistance by Anne Van Der Schoot

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