Elliott Spars With Akzo in Dutch Court in Bid to Oust Chairman

  • Hedge fund wants vote on Burgmans after he rejected PPG offers
  • Court to hand down ruling on shareholder meeting at 6pm May 29

Akzo Nobel NV and shareholders led by activist investor Elliott Management Corp. traded blows in a Dutch court over the hedge fund’s bid to remove Chairman Antony Burgmans, seen as the main obstacle to takeover talks with a U.S. suitor.

“There is a crisis of confidence” among shareholders in the company, Jan Willem de Groot, a lawyer for Elliott, told the commercial court in Amsterdam on Monday. The New York-based fund controlled by billionaire Paul Singer is alleging Burgmans, 70, failed in his duties to investors in refusing meaningful talks and rebuffing three takeover offers by rival PPG Industries Inc., the latest worth about $29.5 billion.

The court hearing in Amsterdam brought together executives and lawyers from all sides, including Burgmans himself. The Akzo Nobel chairman said he’s never experienced aggression such as that shown by Elliott and PPG in a career of dealmaking, yet that hadn’t influenced his decision to reject the three bids. PPG Chief Executive Officer Michael McGarry was also present, and said the Dutch company’s shareholders deserved greater transparency regarding its plan to remain a standalone company.

“The era of elitism and ‘the board knows best’ is over,” McGarry said. “The shareholder needs to be heard.”

The court case opens a legal front in Pittsburgh-based PPG’s attempted takeover of its competitor, and comes 10 days before the offensive could turn hostile. The U.S. company faces a June 1 deadline to submit an offer document to the Dutch market regulator which, if approved, would give McGarry six working days to take the offer directly to shareholders or walk away for six months.

Break Fee

PPG is prepared to pay a break-up fee of more than 200 million euros ($225 million) if a deal is agreed and then collapses. That would be the highest offered in the Netherlands, Arnold Croiset van Uchelen, the lawyer representing the U.S. firm, told the court. PPG independent director Hugh Grant has also offered Burgmans a position on its board if a deal could be reached, a lawyer for Akzo Nobel’s supervisory board said.

The hearing on Monday is the culmination of weeks of campaigning by Elliott to push Akzo Nobel to enter talks with PPG, a move the fiercely independent Dutch company has rejected with the backing of the Dutch government and labor unions. Elliott invested 1 billion euros in Akzo Nobel, de Groot said.

The lawyer is asking the Enterprise Chamber, as the court is called, to reverse Akzo Nobel’s rejection of a request by a group of shareholders for an extraordinary meeting to vote on removing Burgmans. A ruling will be made after the market closes on May 29.

Patience Thin

Other shareholders supporting Elliott include Franklin Templeton Investments, U.K. pension fund Universities Superannuation Scheme, and Tweedy, Browne Co. LLC, which has also called on Akzo Nobel to agree to talks with PPG, saying its patience was wearing thin.

A representative of Franklin Templeton told the court the investor and other shareholders share Elliott’s concerns about governance at Akzo Nobel. Tweedy, Browne added that a third party should be appointed to arrange talks between the Dutch company and its suitor.

The Dutch paint and coatings maker has said PPG’s offers undervalue the company and wouldn’t be in the best interest of all stakeholders. CEO Ton Buechner on April 19 put forward an alternative plan of returning 1.6 billion euros to shareholders and spinning off the chemicals unit within 12 months.

The government said last week it’s seeking to pass a law that would grant a time-out period for Dutch companies faced with unwanted takeover bids or significant strategy changes proposed by shareholders.
 
The Dutch government’s move was triggered by PPG’s approaches to Akzo Nobel and Kraft Heinz Co.’s offer to buy Unilever. The proposed law would ban attempts by shareholders to fire executives or change strategy during a designated period in order to give companies sufficient time to evaluate the consequences for stakeholders, Economy Minister Henk Kamp wrote in a letter to Dutch Parliament.

The measure could come too late for Akzo Nobel, and Kamp has noted in the past the company has its own defense mechanism. If Akzo Nobel loses the court case and Burgmans is removed, the paintmaker could resort to using its poison pill measures to seek to reappoint him or someone sympathetic to his views on the offer.

In a separate petition, Elliott also asked the court to investigate Akzo Nobel’s management policies, a request that wasn’t examined on Monday. Any probe could take more than six months and if the court found evidence of mismanagement, executives could be dismissed.

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