Heard on the Street: There's a Paint Company to Own, But Akzo Nobel Isn't It
June 01 2017 - 11:58AM
Dow Jones News
By Stephen Wilmot
Akzo Nobel shareholders shouldn't hesitate to sell.
The Dutch paint group's refusal to enter talks with U.S. peer
PPG Industries, despite intensifying calls from key investors to do
so, has laid bare not just the board's lack of commitment to
owners' interests but also the protection from shareholder pressure
afforded by the company's capital structure and Dutch law. This
cannot be the basis for a sound investment -- especially at such a
lofty price.
Even now that PPG has made clear it won't mount a hostile bid --
Thursday was its deadline under Dutch "put up or shut up" rules --
Akzo Nobel shares are trading close to an all-time high, and 16%
higher than before the company made PPG's first public offer in
early March. Just about all investors will be able to sell out at a
substantial profit.
These include Elliott Management. The New York activist lost a
court case on Monday that would have forced Akzo Nobel to hold a
shareholder vote on Chairman Antony Burgmans, who many saw as the
obstruction to a deal. It has egg on its face for pinning its hopes
on a legal strategy that failed, but can be comforted by big gains
on its stake, which was accumulated late last year with a view to
pressing management to sell or spin off its specialty chemicals
business. One of the ironies of the battle between Elliott and Akzo
Nobel is that the company will end up performing this split as the
centerpiece of a stand-alone strategy hurriedly put together in the
wake of PPG's offer.
Some investors may be tempted to hold on to their shares on the
basis that this split will -- finally -- unwind the conglomerate
discount at which the shares have historically traded. But hopes
are already high: Akzo Nobel stock trades at a premium to PPG's for
the first time in half a decade.
And a governance discount might yet emerge, given the board's
failure to listen to long-term shareholders. Despite being
unaccustomed to noisy protestations, several of these went public
with their displeasure over Akzo Nobel's refusal to engage with
PPG. The company's antitakeover defenses have also been effectively
tested, giving management scope to relax.
PPG's shares rose 3% on news of its withdrawal. The company,
which has had success in consolidating the U.S. industry alongside
Sherwin-Williams, may now move to acquire another paint group in
the fragmented European market, argues Graham Copley at
investment-research house SSR. That will put further pressure on
Akzo Nobel, which will be a smaller company after its coming
split.
If there's a paint giant to own, PPG looks the one.
Write to Stephen Wilmot at stephen.wilmot@wsj.com
(END) Dow Jones Newswires
June 01, 2017 11:43 ET (15:43 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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