Dutch Court Backs Akzo Nobel in Dispute With Elliott Management -- Update
May 29 2017 - 4:07PM
Dow Jones News
By Natalia Drozdiak and Ben Dummett
U.S. activist investor Elliott Management Corp. lost a legal
battle Monday to remove Akzo Nobel NV's chairman, increasing
pressure on PPG Industries Inc. to make a hostile bid for the rival
Dutch paint and chemicals giant or abandon its monthslong takeover
pursuit.
Earlier this month, Elliott took Akzo to court in the
Netherlands to force Akzo to hold a special shareholder meeting on
the dismissal of Antony Burgmans. Akzo, citing Dutch law,
previously rejected the shareholder request for such a meeting.
Elliott claimed that Mr. Burgmans failed to "discharge his
fiduciary and corporate governance duties" after the
Amsterdam-based company rejected PPG's latest, sweetened offer of
EUR24.6 billion ($29.49 billion) without first attempting to
negotiate a deal.
Akzo, which supports Mr. Burgmans, argues its stand-alone
strategy to boost dividend payouts and spin off its specialty
chemicals business and return the bulk of the proceeds to
shareholders will generate more value. In defending its position,
the paint maker has said its actions have met the highest standards
of corporate governance in the Netherlands and complied with Dutch
law.
Siding with Akzo, the Dutch business court rejected Elliott's
request to allow for the vote to take place. The court said Akzo
had analyzed PPG's bids "seriously" and that the dismissal of the
company's chairman is a matter of strategy, which is for the
management and supervisory board to decide -- not the
shareholders.
Elliott can appeal the decision to the Dutch Supreme Court. A
spokeswoman said Elliott was "surprised and disappointed" with the
ruling. "Elliott is considering the implications of this judgment
for shareholder rights in the Netherlands and for its next steps in
relation to Akzo Nobel," she added.
"AkzoNobel is very pleased that the [court] has decided that its
boards have acted in accordance with the highest standards of Dutch
corporate governance and it confirms the position and actions of
the Chairman," said Akzo spokesman Andrew Wood. The company will
continue to engage in a constructive dialogue with its
shareholders, he added.
In its ruling on Monday, the Dutch court also warned Akzo that
it can't afford to ignore the rift with some of its shareholders
over the company's strategy.
"A constant lack of confidence from a substantial part of the
shareholders is detrimental for Akzo Nobel and all its
shareholders," the court said.
The court said it would continue to assess whether it needs to
call for an independent investigation into Akzo over whether the
company has been sufficiently transparent with its shareholders
about the process it took when rejecting the PPG proposals.
With its court challenge, Elliott was betting that a favorable
shareholder vote -- or the threat of one -- to remove an important
opponent to PPG's offer, could pressure the board to bow to deal
talks.
At the hearing PPG Chief Executive Michael McGarry also urged
the Dutch court, known as the Enterprise Chamber, to "do all that
is necessary" to require Akzo to enter into negotiations, according
to a transcript of the executive's statement. PPG said Monday that
it remains open to deal talks with Akzo, but "without productive
engagement, PPG will assess and decide whether or not to pursue an
offer for Akzo Nobel."
The Pittsburgh-based paint maker, under Dutch law, must decide
by June 1 whether to present its offer directly to Akzo
shareholders, a move tantamount to launching a hostile bid. Its
alternative is to shelve its bid for at least six months. PPG has
appealed to the Dutch securities regulator to delay the cutoff date
to June 14 or June 15.
Hostile takeover attempts are considered risky because they
create a conflict for shareholder support. The acquiring company
also doesn't have the benefit of due-diligence on the target
company's operations that is typical in friendly transactions.
The Elliott-led investor group pushing Akzo to enter into talks
could embolden PPG to attempt a hostile bid because the investors
together own more than 10% of Akzo shares.
But that prospect still may not be enough of an incentive
because Akzo's corporate structure could allow a group of current
directors to thwart a takeover, even if PPG won over investors to
complete a deal. That's because the Dutch company's controlling
foundation and its four directors, including Mr. Burgmans, Akzo's
chairman, retain exclusive rights to nominate replacement Akzo
directors.
PPG has previously showed an unwillingness to launch a hostile
bid against its rival. In 2013, the company privately approached
Akzo about a possible tie-up but the effort didn't result in
further negotiations and PPG ended the effort.
Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Ben
Dummett at ben.dummett@wsj.com
(END) Dow Jones Newswires
May 29, 2017 15:52 ET (19:52 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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