PPG Akzo Bid

Last Thursday, Dutch paint and coatings giant Akzo Nobel rejected Pittsburgh-based PPG Industries’ unsolicited, $22 billion takeover bid. The offer, representing a 29% premium on last Wednesday’s closing price at $88 a share, sought to combine the two largest players in the coatings industry. Akzo Nobel and PPG Industries currently account for 9% and 12% of the global coatings market respectively. Despite having to overcome antitrust hurdles, PPG argues the deal would create value by combining complementary products and processes, creating larger economies of scale, and growing financial strength and investment grade rating.

Rejecting the offer, Akzo responding in a statement last Thursday that the bid undervalued the company and did not account for “long term value creation potential”. According to CEO Ton Buchner, “Akzo Nobel is best placed to unlock the value within our company ourselves”. Despite possible new synergies, the deal would lead to little cost reduction and result in a heavily leveraged company per Akzo. To appease shareholders, Akzo announced it would instead look to spin off its chemicals division in the next few months as part of a larger plan to create a leaner, more profitable company structure. The chemicals division accounted for roughly a third of Akzo sales in 2016 and analysts expect it could be worth $9.18 billion, 9 times its 2016 EBITDA of $1.02 billion.

In the face of Thursday’s statement, PPG has continued to display interest in the deal despite strong barriers currently protecting Akzo from a hostile takeover. Dutch officials including Economic Affairs Minister Henk Kamp are strongly opposed to the deal and have stated it would be against national interest. PPG’s bid, coming on the heels of Kraft Heinz’s $153 billion bid for Dutch-British consumer goods producer Unilever, has become a major political issue in the Netherlands, a country that is holding elections next week. It remains to be seen how much the implications of the PPG bid has shaped the Dutch political environment but fear of foreign takeovers of domestic companies has provided legitimacy to protectionist Dutch candidates like Geert Wilders and created a surge of nationalism.