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Akzo Nobel rejects €20.9bn bid by PPG

Dutch paints and coatings maker Akzo Nobel has rejected an unsolicited €20.9bn takeover bid by US industrial chemicals rival PPG Industries and said it is instead looking at spinning off its specialty chemicals business.

Akzo Nobel said on Thursday that the PPG bid substantially undervalued its prospects and it made a broader appeal to its stakeholders by saying the takeover was not in the interests of customers and employees.

Dutch MPs from across the political spectrum moved quickly to criticise the US company’s approach, which became the latest high-profile bid for a Dutch company in the middle of a tight election campaign.

A combination would bring together two manufacturers of products ranging from protective coatings for iPhones to industrial paints and table salt.

However, any deal would likely face significant scrutiny from antitrust authorities given the overlap between the two companies and the already limited range of competition.

Akzo Nobel said it had brought forward its plans to review a separation of its specialty unit in response to the unsolicited cash-and-stock bid from PPG, which was made on March 2.

The unsolicited proposal we received from PPG substantially undervalues our company and contains serious risks and uncertainties

The offer valued shares in Akzo Nobel at €83 each and comprised €54 in cash and in 0.3 PPG stock. That is roughly a 29 per cent premium to Akzo Nobel’s undisturbed share price at the close on Wednesday.

Ton Büchner, chief executive of Akzo Nobel, said: “The unsolicited proposal we received from PPG substantially undervalues our company and contains serious risks and uncertainties . . . Along with my colleagues on our boards, our executive team and our thousands of employees, I firmly believe that Akzo Nobel is best placed to unlock the value within our company ourselves.”

He added: “We understand our role in society and want to protect our ability to continue to invest in communities, research and development, innovation and sustainability in the countries in which we operate.”

Later in the day, PPG confirmed its offer and indicated it would not abandon its pursuit.

Michael McGarry, chairman and chief executive of the Pittsburgh-based company, said: “We are confident that this combination is in the best interests of the stakeholders of both companies as it presents a unique opportunity to build on the successful legacies of our businesses.”

PPG added that it still believed there was a “strong strategic rationale” for a deal and that it would “carefully evaluate and consider its position and path forward related to its proposal”.

Shares in Akzo Nobel jumped 13 per cent to €72.79 in Amsterdam trading, giving the company’s equity a value of €18.4bn. PPG shares fell 3.6 per cent to $103.09 in by early afternoon in New York, making its equity worth $28.1bn.

Jeremy Redenius, an analyst at Bernstein, said: “We think a combination is credible and potentially powerful.”

The unsolicited bid comes at a politically sensitive time in the Netherlands, where nationalist sentiments are on the rise ahead of next week’s general election.

It comes just weeks after Kraft Heinz launched a $143bn bid for Anglo-Dutch group Unilever, which shocked the Dutch business community and politicians.

Jeroen Dijsselbloem, the Dutch finance minister, who earlier this week called for the government to have greater power to block foreign takeovers of domestic companies that were deemed to be against the national interest, said: “A takeover of Akzo Nobel is absolutely not in Dutch interest.”

He added: “This hostile takeover would lead to a split, sale and disappearance of knowledge and research in our country. And would be harmful to the long-term economic strength of the Netherlands.”

Further coverage of PPG/Akzo Nobel bid

Lex: Paint feint
Corporate analysis: Akzo Nobel chief Büchner faces stiffest test
World analysis: Dutch discontent, wealthy but angry

Mainstream parties in the Netherlands are coming under pressure from the surge in popularity of Geert Wilders’ far-right Party for Freedom (PVV), which is riding the anti-immigrant and populist wave that has swept Europe in recent years.

A hostile or unfriendly takeover of Akzo Nobel would be complicated because the Dutch company has sufficient powers in its corporate governance to block any hostile approach.

Akzo Nobel tried to appease investors by saying it had brought forward plans to separate its specialty chemicals unit, which had revenues of €4.8bn in 2016 and makes ingredients used in products including paints, detergents, foods, plastics, cosmetics and pharmaceuticals.

Since taking over as Akzo Nobel’s chief executive in 2012, Mr Büchner has concentrated on making the sprawling group leaner and more profitable. That has involved restructuring, job cuts and closing facilities.

After hitting financial targets he had set out for the company, Mr Büchner said in February 2016 that the company had “earned the right” to make bolt-on acquisitions.

Its core profit increased 2.7 per cent in 2016 to €1.5bn, as measured by earnings before interest and tax after excluding one-off items. It attributed this to greater production volumes and lower costs.

But revenue fell 4.5 per cent to €14.2bn, which it blamed on unfavourable currency movements and “price/mix effects”, implying that lower-priced products accounted for a greater proportion of total sales.

Akzo Nobel’s performance coatings division has suffered from tough conditions in the marine and oil and gas industries.

This article has been amended to reflect the fact that the Dutch election is next week, not next month

Via FT