Industrial paints and coatings company AkzoNobel has voiced an objection once again over the takeover proposal from US rival company PPG Industries. The deal worth $24.1 billion, according to decision makers, was still inappropriate and risky.
Even in the second attempt, PPG Industries could not ensure the proposal would be beneficial for the people associated with the company directly or indirectly. The Management Board and Supervisory Board of AkzoNobel found that there were too many uncertainties in the proposal presented to them, which also included huge anti-trust issues.
The AkzoNobel board consisted of technical, financial, and legal experts to make sure all the aspects of the proposal are reviewed properly. The board members observed that PPG Industries still failed to work on the concerns based on which the experts rejected its initial proposal. The points jotted down in the latest proposal were incapable of satisfying the decision makers in terms of the interests of the Dutch paint maker’s shareholders, employees, customers, stakeholders, and other people associated with the firm.
The second proposal came just after two weeks of PPG Industries made its first bid worth $22.6 billion. The first bid was rejected on March 9. AkzoNobel CEO Ton Buchner released a statement on Wednesday in which he noted the reasons for rejecting the proposal for the second time.
“This proposal significantly fails to recognize the value of AkzoNobel. Our Boards do not believe it is in the best interest of AkzoNobel’s stakeholders, including our shareholders, customers, and employees. That is why we have rejected it unanimously.”
“We are convinced that AkzoNobel is best placed to unlock the value within our company ourselves. We are executing our plan, including the creation of two focused businesses and new cost structure, and believe this gives us a strong platform for continued profitability and long-term value creation for all our stakeholders with substantially less execution risks.”
While several shareholders think the deal is advantageous, AkzoNobel has strict defenses against the takeover proposal, which experts have found inappropriate and unprofitable. The rejection of the PPG Industries’ proposal has also affected its share prices. It has been observed that the share value of the company has deteriorated by around 3 percent on Wednesday morning.
The decision makers reviewed the bid and concluded that the bid undervalues AkzoNobel share prices, thereby affecting the shareholders and stakeholders. The proposal indicates the risks associated with the high leverage of the proposed business collaboration. The experts found that the businesses if combined might lead to huge overlapping as far as geographical segmentation is concerned.
Besides AkzoNobel experts, Dutch politicians have also criticized the PPG Industries bid. Economic Affairs Minister Henk Kamp openly opposed the proposal, saying it was not in the national interest. In addition to the political leader, the governors of four provinces also opposed the takeover. They said that the deal would lead to a loss of jobs in the country.
On the contrary, Reuters mentioned a conversation with one of the top 20 AkzoNobel investors. He claimed that the bid price might appear attractive in future.
“We are at the moment undecided/ambivalent on a deal. Certainly, a price in the 90s would represent a chunky multiple and could be tempting,” the investor said. “Certainly at this price we would believe it is up to management to convince us not to sell as Akzo has been ‘cheap’ for a long time.”
Reports have suggested that AkzoNobel might separate its chemical division from its main paints and coatings business. Though both Akzo and PPG Industries record almost equal annual sales of approximately $15 billion, AkzoNobel is considered the master player in its field.
This is not the first time when the US rival of the coating business has proposed taking over the brand. PPG Industries acquired the North American division of AkzoNobel in 2013. The deal was worth $1 billion.
[Featured Image by Peter Dejong/AP Images]