Elliott Steps Up Pressure as Akzo Spurns New PPG Bid -- 5th Update

By Ben Dummett 

LONDON -- American-style activism is storming the Old World.

Elliott Management Corp., one of the biggest activist investors in the U.S., has emerged as a key player in a $24 billion, trans-Atlantic standoff between two of the world's oldest industrial companies. It is pushing Dutch paint and chemicals giant Akzo Nobel NV -- which traces its roots in part to dynamite inventor Alfred Nobel -- to enter into talks with PPG Industries Inc., a Pittsburgh-based rival.

On Wednesday, Elliott threatened to use corporate rules unique to the Dutch company's structure to call a special shareholders meeting, in a bid to force Akzo's board to at least talk with PPG. Akzo, based in Amsterdam, earlier in the day rejected a second, sweetened takeover offer by PPG, valued at EUR22.37 billion ($24.19 billion).

The surprise move came after some analysts and other observers had concluded Akzo's Dutch corporate structure, and the rules peculiar to it, protected the firm from a takeover -- not made it more vulnerable.

Activist shareholders are hardly novel in Europe. But they tend not to be as aggressive or widespread as in the U.S. They also don't target big household-name corporations like Akzo quite so frequently. Many of Europe's biggest companies have structures that can make an activist push less effective -- including shareholder structures that include poison pills, controlling families or foundations that can have an outsize say.

Elliott, which has been active in Europe for years, is proving particularly creative in its approach with Akzo, an amalgamation of Swedish and Dutch companies that date back more than a century, and whose paint brands include Dulux.

Suitor PPG, founded in 1883 as Pittsburgh Plate Glass Co., now mostly makes paints, too, including brands like Pittsburgh Paints and Olympic.

Akzo's board and management remain opposed to a purchase by PPG, and investors still see the deal as unlikely. The Dutch company's shares fell 1.1% to EUR75.78 in Amsterdam Wednesday, trading at steep discount to the latest offer price of EUR88.72 a share, which Akzo rebuffed earlier in the day.

PPG's second approach came just weeks after Akzo rejected PPG's initial EUR83-a-share offer. In both cases, Akzo said the offers undervalues the company and doesn't warrant further talks.

Elliott, which owns a 3% stake in Akzo, on Wednesday agreed that the new offer was too low, but the hedge fund is urging the board to at least engage with PPG.

Elliott has fallen short in Europe before. In 2011, it lost a battle to replace management at Swiss biotech company Actelion Ltd. Earlier this year, Actelion agreed to sell itself for $30 billion to Johnson & Johnson.

Other activists here are pursuing big prey in Europe. Hedge fund TCI Fund Management Ltd. is urging Safran SA to abandon its planned EUR8.5 billion takeover of Zodiac Aerospace SA. Last year, ValueAct Capital Management LP won a seat on the board of British aircraft-engine maker Rolls-Royce Holdings PLC.

Before PPG's initial bid, Elliott was already preparing a proposal to persuade Akzo to split off its specialty-chemicals business to boost the Dutch company's stock price, according to a person familiar with the matter.

With PPG's offer now on the table, Elliott argues that Akzo should negotiate with PPG to determine whether a takeover -- at a higher price -- would generate more value for shareholders, the person said.

Akzo said Wednesday it would spin off its specialty-chemicals business, a move it previously said management was only considering. But executives believe remaining independent is the best way to benefit shareholders, employees, customers and other stakeholders.

"This is just not about price," said Akzo Chief Executive Ton Büchner in an interview. "This is about the impact it has on a variety of stakeholders that is not always appreciated by the Anglo-Saxon shareholder environment, but that is the law over here."

Earlier this week, four Dutch provinces warned a combination would threaten the loss of more than 5,000 jobs due to potential overlap of the two companies' businesses.

Some analysts have considered Akzo's Dutch structure, including what is seen as robust takeover defenses, as a major obstacle for PPG winning out on anything other than friendly terms. Akzo's articles include so-called priority shares, which give holders ultimate discretion over the composition of Akzo's management and supervisory boards, according to Olivetree Financial, a research firm that specializes in analyzing takeovers. The priority shares are held by Foundation Akzo Nobel, whose board comprises some members of the company's supervisory board.

But Elliott maintains the company's rules also allows it to call an extraordinary shareholders meeting if it gets at least 10% shareholder support. It says it can then call for a shareholder vote to remove members of the management and supervisory boards, if a majority of shareholders support the move. Mr. Büchner declined to specifically address the strategy.

Elliot would need more shareholders to join its cause, and has won some early supporters. John Bennett, head of European equities at Henderson Global Investors, wants Akzo to talk with PPG. "The management team is rapidly losing credibility," he said. Henderson owns a little less than 1% of Akzo's shares.

Write to Ben Dummett at [e-mail]

(END) Dow Jones Newswires

March 22, 2017 17:47 ET (21:47 GMT)

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