How an unwanted offer can boost value

Sometimes there is nothing quite like the arrival of an unsolicited and unwelcome offer to boost management performance and therefore shareholder value. The recent experience of Akzo Nobel offers a near textbook example.

AkzoNobel, the dual UK/Netherlands-listed multinational conglomerate, received a letter containing such an offer in the spring. Dated 2 March 2017, it was sent by PPG Industries, a US-based multinational conglomerate, offering a total of €83 per share.

That compared with a market value of €64.81 on that day. In its reply, from supervisory board chairman Antony Burgmans and CEO Tom Büchner, AkzoNobel described the informal, unsolicited offer as highly conditional. It rejected it outright.

Conflict of interest?

Moreover, it added that it was highly surprised that PPG Industries had appointed Allen & Overy as counsel. The law firm, it pointed out, had advised its CEO recently on the terms of his employment and also acted as counsel to its UK pension trustee.

PPG Industries, advised by vampire squid Goldman Sachs, made two further approaches to AkzoNobel. On 20 March it upped the offer to €90. On 24 April it went even higher and offered €96.75. Both were rejected.

No one is suggesting that the AkzoNobel management were not already doing their best and working their hardest. But there is little doubt that if they were, then their best quickly became better and the hard work took on a new manifestation.

Unveiling a new strategy

In the wake of the unsolicited offer, AkzoNobel unveiled a new strategy to create two focused, high-performing businesses with sustainable growth plans within 12 months. The stated aim was to accelerate momentum and enhance profitability.

The new strategy will see the creation of two focussed, high-performing businesses: Paints and Coatings and Specialty Chemicals. The management says this will lead to a step change in value creation for shareholders and all stakeholders.

The next phase builds on a strong financial and operational foundation, they say. It will generate superior, faster and more certain value creation than the alternatives (PPG offer) and with substantially fewer risks, uncertainties and social costs.

Proceed to the next level

The creation of these two independent, high-performing businesses will take the company to the next level, they state. There will be a clear separation within 12 months, they pledge.

The planned move can also accelerate growth and value creation

• Above market growth rates
• Clear customer focus
• World class global brands
• Market leading innovation
• Teams with proven track record
• Market specific capabilities
• Differentiated capital and resource allocation
• Targeted acquisitions
• Clean valuation from the financial markets
• Increasing returns to shareholders

Hard cash on offer

There is hard cash on offer to shareholders. This will include a 50% increase in 2017 to the regular dividend to €2.50 per share. Management believes this will reinforce confidence in the future plan to further drive growth and profitability.

Management also says that the vast majority of net proceeds from the separation of Specialty Chemicals will be returned to shareholders. A €1bn special dividend will be paid in November 2017 reflecting confidence in the planned separation.

Management says that project teams are already in place for the separation of the Specialty Chemicals business. They add that there will be a dual-track process with active consideration of a separate listed entity or sale.

Emergency general meeting

AkzoNobel has since convened an Extraordinary General Meeting of Shareholders (EGM) to be held at the Hilton Hotel, Apollolaan 138, 1077 BG Amsterdam, the Netherlands, on Friday, September 8, 2017 starting at 14.00 CET.

• The agenda items are as follows
  Appointment of Mr TFJ Vanlancker as a member of the Board of Management (voting point)
• Further explanation and discussion regarding AkzoNobel's response to the PPG proposals (discussion point)

In addition to the EGM, AkzoNobel also announced a range of measures designed to strengthen and maintain a constructive dialogue with its shareholders.

These include

• The creation of a Supervisory Board committee for shareholder relations
• The appointment of David Mayhew and team from JP Morgan Cazenove as advisers for shareholder relations
• Senior executive remuneration to be aligned to the new financial plan
• A programme of meetings to introduce new CEO
• An augmented schedule of roadshows and conferences
• An enlarged programme of analyst and investor webcasts and events

To all of this frenetic activity there can surely be only one possible reaction. And that is to ask a simple question. If it were all so obvious to management, so quick and easy to devise and implement, why did it not happen earlier?

For the record

For the record, the post-offer AkzoNobel share price peaked at €82.64 on 25 April. It has scarcely moved since the final rejection was communicated. At the time of writing (early afternoon on 27 July) it stood at around €75.83.