Akzo Nobel chief executive officer Ton Buechner said breaking up the centuries-old Dutch paint maker is less risky and provides faster returns for shareholders than a $24bn takeover approach from rival PPG Industries, as he sought to rally investors to his side.
The Amsterdam-based company proposed to carve out its specialty chemicals division within 12 months and return €1.6bn ($1.7bn) to shareholders, according to a statement yesterday. The payout for this year will include a €1bn special dividend as well as a 50% rise in the regular one.
“This is the better plan,” Buechner said in an interview with Bloomberg TV. “Other plans would actually have significant time required for regulatory approval.”
Buechner’s strategy that also includes new financial targets will be a tough sell in his battle against Pittsburgh-based PPG. The 51-year-old Dutch national needs to convince those shareholders urging him to engage with the US suitor after Akzo Nobel rejected as too low a second and sweetened proposal of €88.72 a share. The CEO reiterated that stance during a presentation in London yesterday to analysts and investors.
While the company’s pledge for extra cash for shareholders is promising, the earnings goals “are a huge stretch,” according to Bernstein analyst Jeremy Redenius. He estimated they could lift Akzo Nobel’s value to between €85 and €93 a share, although “Buechner will have a huge challenge” to show how the company can get there.
Akzo Nobel shares gained 1.3% to €79.32 in Amsterdam trading as of 1:54 p.m. local time. This values the company at €20bn.
“The increase in financial guidance is much more substantial than I had expected,” said Joost van Beek, an analyst at Theodoor Gilissen Bankiers. “It’s all about the explanation, how dependent are they of a solid external environment, and what would they be able to reach internally.”
Recent developments in the back and forth between the two companies have taken a more hostile tone, with PPG CEO Michael McGarry this week appealing directly to Akzo Nobel shareholders with his rationale for the deal. Activist investor Elliott Management Corp is seeking to force a special shareholders’ meeting to oust the company’s chairman. Buechner said a response to Elliott’s demand will be made “soon.”
At the London meeting, an Elliott representative faulted Akzo Nobel’s board for failing in its corporate governance duties by not providing a detailed comparison of the two competing plans for the company. The CEO rejected the charge, saying his presentation is “about our plan on value going forward.”
The Dutch maker of coatings said it will run a dual-track process for the separation of the specialty chemicals business to consider a listed entity or a sale. Akzo Nobel also outlined €150mn in annual cost savings and an extra €50mn in savings from the proposed carve out.
Separation of specialty chemicals will unlock value and allow easier comparisons with peers, Buechner said, adding the division won’t be sold in separate parts. He also said Akzo Nobel’s new plan might allow for smaller bolt-on acquisitions, although bigger deals would be excluded in the short term.
Akzo Nobel reported better-than-expected results in the first quarter. Earnings before interest and taxes through March jumped 13% to €376mn, versus an average estimate of analysts surveyed by Bloomberg of €338.8mn.
PPG has outlined $750mn in cost savings from a combination with Akzo Nobel at a time when prices for raw materials including the widely used TiO2 white pigment are on the increase. Akzo Nobel chief financial officer Maelys Castella said the company is putting in place its own savings measures to deal with inflation.