Class of 2019 | delgj@wharton.upenn.edu
Akzo Nobel N.V. is a Dutch multinational company that specializes in producing paints, performance coatings, specialty chemicals, and essential ingredients for industrial protection materials. Its U.S. Rival, PPG Industries is a Fortune 500 global supplier of paints, coatings, specialty materials, and fiberglass headquartered in Pittsburgh, Pennsylvania.
Beginning in early March, PPG has offered two takeover bids to Akzo Nobel, the most recent one for $26 billion and which was rejected unanimously by the board. PPG’s aims are to create a powerful combination of the two to dominate the $130 billion global paints and coatings industry. PPG firmly believes that the acquisition would offer Akzo Nobel shareholders a substantial premium and a chance to benefit from the upside potential of a larger company that would be better positioned to drive value creation and inherent growth.
While PPG has been using media tactics to pressure Akzo Nobel management into working out the deal, Akzo Nobel has been fighting Elliot Advisors, a hedge fund that owns 3.25% of the equity interest in Akzo Nobel via its U.K. division, over its decision to reject the two takeover bids from PPG. Since both bids were rejected, Elliot Advisors has been pushing shareholders and is now backed by investors holding more than 10 percent to hold an “extraordinary general meeting” to remove Akzo Nobel’s chairman Antony Burgmans. A significant portion of these shareholders have requested that the company hold the meeting to vote on the removal of the Chairman of the Supervisory Board.
On Tuesday, April 11th, Gordon Singer, Co-Chief Investment Officer at Elliot Advisors sent an email to what should have been a private distribution list of Elliot Advisors representatives only. The email speculated on whether Akzo Nobel would make public the letter calling for Burgmans’ dismissal and said shareholders would withdraw their call for a meeting if Burgman instead agreed to sit down with PPG to discuss a potential deal.
However, Singer “accidentally” carbon copied Lloyd Midwinter, Akzo Nobel’s director of investor relations. Whether this email blunder was truly an accident remains unclear. To add insult to injury, Singer had added a footnote directing an Elliot employee to inform PPG that it had sent the letter to Akzo Nobel about the possibility of holding the meeting, suggesting that now was an “opportune” time for PPG to attempt to engage with Akzo Nobel. Some speculate Singer could have purposefully revealed his tactics to force Akzo Nobel’s hand.
In response to this major slip up, Akzo Nobel has accused Elliot of planning to share price-sensitive information with PPG and has rejected calls for the dismissal of Burgmans. Sharing potentially price-sensitive information could lead to fines or prosecution depending on the severity of the market abuse. In a company statement, Akzo Nobel said that it has “shared this information with the Dutch Authority for the Financial Markets and has called on Elliot Advisors and PPG to clarify their relationship and the history of the communications between these two companies.”
As required by Dutch law, Akzo Nobel has agreed to consider the request to hold the extraordinary general meeting and will respond to Elliot Advisors within 14 days. Due to its regulatory obligations, Akzo Nobel is expected to respect the will of the shareholders by convening the meeting to remove Burgmans. However, the company has also expressed that any attempt to dismiss its own chairman would be “irresponsible, disproportionate, damaging and not in the best interest of the Company, its shareholder and other stakeholders,” primarily due to antitrust reasons. All in all, “the proposed agenda item to remove Mr. Burgmans will be rejected.”
Akzo Nobel CEO Ton Buechner is now set to present to investors on April 19th, when he intends to outline his plans to counter the takeover by PPG. While he waits for Elliot Advisors to clarify on whose side they are, we will have to wait on the sidelines to see whether he can gain the support needed to remain independent.
Figure 4: Market Reaction to Rejection of Bid