The Dutch company is refusing to talk about a merger with PPG

By Reuters
May 9, 2017
May 09, 2017

Elliott Advisors, the hedge fund that has been pushing Dutch paint maker Akzo Nobel akzoy to enter takeover talks with U.S. peer PPG Industries ppg , said Tuesday it had launched legal action to try to oust Akzo chairman Antony Burgmans.

In an open letter, the fund said Akzo’s rejection of PPG’s third takeover proposal, worth 26.3 billion euros ($28.7 billion), was “a flagrant breach of Akzo Nobel’s Boards’ fiduciary duties and of Dutch corporate law, and … an arrogant dismissal of recognized principles of proper corporate governance.”

Akzo has said PPG’s bid is too low and lacks firm commitments to the company’s stakeholders, including employees and environmental interests. The company’s boards prefer their own plan to avoid a PPG takeover by issuing extra dividends and selling or floating Akzo’s chemicals division, representing about a third of profits.

Analysts say Akzo’s plan is not as attractive for shareholders as PPG’s 96.75 euro per share offer. Akzo shares were trading 0.1 percent higher at 76.88 euros on Tuesday.

Elliott said it had filed a suit with Amsterdam’s Enterprise Chamber petitioning judges to order an extraordinary general meeting (EGM) of shareholders to debate Burgmans’ dismissal.

Under Dutch law, shareholders representing a 10 percent stake have the right to ask the company to call an extraordinary general meeting, or EGM. Elliott, with a 3.25 percent stake, had earlier assembled a group of investors meeting the threshold and requested Akzo call such a meeting. The company declined, saying it supported Burgmans and an EGM would not be in the company’s best interests.

Akzo spokesman Leslie McGibbon said Elliott’s decision to go to court was “incredibly disappointing.”

“We’ve conducted an extremely thorough review of all proposals from PPG, including engagement” between Burgmans and PPG CEO Michael McGarry “exactly as Elliott requested,” McGibbon said. He added that Akzo’s handling of PPG’s proposals had followed Dutch corporate governance rules.

Elliott’s legal fight complicates the timeline for the Akzo-PPG takeover struggle.

PPG faces a June 1 deadline to make a formal bid for Akzo or walk away for a six-month cool-down under Dutch securities law. PPG has implied it will make a bid, though if it has not won support from Akzo’s boards, the bid will be considered hostile.

Successful hostile takeovers of Dutch companies by foreign buyers are extremely rare, and face an array of difficulties, not least Akzo’s poison pill powers to thwart unwanted suitors, which date from 1926.

In addition, the country’s economy minister and other politicians have said they oppose a takeover of Akzo.

A hearing date for Elliott’s complaint has not been set. If judges rule in the fund’s favor, the minimum period before which an EGM can be held is 15 days.

That means that unless Elliott’s plea is granted within the coming six days, an EGM on Burgmans’ future would only come after PPG’s bid deadline.

Regardless of whether the plea is granted, the level of shareholder support for Elliott’s position is unclear.

An Elliott-commissioned study estimated it at a minimum 24 percent of shareholders. At Akzo’s annual general meeting on April 25, around 33 percent of shareholders voted against granting the company the ability to issue new shares.

Both estimates point to discontent in the company’s shareholder base, 93 percent of which is foreign, to the course plotted by Akzo’s boards.

But it remains unclear whether a majority of shareholders would actually support the ouster of Burgmans, a former Unilever CEO, or how many would tender shares to a hostile PPG bid.

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