After third rejection by Dutch rival, paint giant considers taking pitch directly to target's shareholders

By Andrew Tangel 

Michael McGarry gets excited about paint drying. After all, that is his job as the leader of a paint-and-coatings giant that prizes staying under the radar.

"We don't need to see ourselves in the newspaper," said the chief executive and chairman of PPG Industries Inc. in a recent interview. "This is not our style."

Now, though, Mr. McGarry is at the center of what could be one of the biggest and riskiest corporate takeover battles in recent memory -- a cross-border pursuit of Dutch rival Akzo Nobel NV. In the last two months, he has made three separate offers, ultimately valuing the Dutch company at up to approximately $27 billion, only to be rejected publicly each time. After the last brushoff two weeks ago, Mr. McGarry said he was considering whether to go around the company's board and management, including Akzo Chief Executive Ton Büchner, and take his pitch directly to shareholders.

The generally quiet paint industry is an unlikely source of high-stakes corporate drama. And Mr. McGarry, a 59-year-old described by one colleague as a Southern gentleman, might seem an unlikely figure to lead what could be a bruising fight. But the ingredients have been long in the making as the industry undergoes consolidation. PPG's rival Sherwin-Williams Co. is in the final stages of a $9 billion acquisition of Valspar Corp.

A deal involving Akzo brings with it unique challenges. Dutch laws make a hostile takeover difficult and some observers view the potential bid as a long shot. Antitrust regulators may force the combined company to sell off businesses. Even if Mr. McGarry is victorious, combining the companies would be risky. The latest offer by Pittsburgh-based PPG for Akzo -- $27 billion, approximately PPG's own market capitalization -- could carry expectations to cut costs that the combined company would struggle to meet, said Dmitry Silversteyn, an analyst at Longbow Research in Cleveland.

A court hearing scheduled for Monday, in an activist investor's bid to force Akzo to hold a special shareholder meeting, could influence PPG's decision on whether to pursue a hostile takeover. If Mr. McGarry decides to pursue such a bid, he would have to do so by a June 1 regulatory deadline or wait at least six months under Dutch rules.

Mr. McGarry argues joining forces would help save the combined companies $750 million in costs, strengthen their global foothold and boost organic growth amid sluggish demand in some markets and rising materials costs, a position supported by some analysts who back the deal.

He said he is approaching the Akzo deal like other acquisitions he helped orchestrate, despite its far greater size. He was a behind-scenes point person in PPG's 2008 acquisition of Dutch coatings maker SigmaKalon Group for $3 billion, still the largest-ever for the company. In 2014, the company paid $2.3 billion for Mexican paint company Consorcio Comex SA. PPG bought Akzo's North American paint business that year for $1 billion.

"We're always going to be measured in the way we do it," he said, referring to acquisitions. "We're not going to be radical."

Early in his career, Mr. McGarry became interested in running businesses and understanding how things worked. He worked as a mechanic at a bowling alley while he was growing up in New Orleans. After studying mechanical engineering at the University of Texas at Austin, his first job in 1981 was at a PPG plant in Lake Charles, La. He has been at the company ever since.

Still a regular league bowler in Pittsburgh, Mr. McGarry maintains what colleagues describe as a common touch. He is known for getting to know customers, from house painters to auto-industry executives. Colleagues describe Mr. McGarry as a methodical manager who carefully studies decisions and their potential outcomes. "He's a smart risk-taker -- he's not reckless," said Hugh Grant, PPG's lead director. "He's much more calculated than that."

In the Akzo battle, Mr. McGarry also has help from U.S. activist investor Elliott Management Corp., which wants to strong-arm Akzo into sale talks with PPG. Elliott was the party asking the Dutch court to force Akzo to hold a special shareholder meeting, which also seeks to remove the supervisory board chairman. Akzo has defended itself and questioned how dismissing the company's supervisory chairman would benefit stakeholders.

Colleagues say Mr. McGarry focuses on more than just the interests of shareholders. Bill Mansfield, who served with Mr. McGarry on the board of chemical company Axiall Corp., recalled him standing up for employees when Axiall was negotiating a sale to Westlake Chemical Corp. "He understood the realities of acquisitions, but at the same time there's a right way to do it and there's a wrong way to do it," said Mr. Mansfield, a former chief executive of PPG competitor Valspar Corp.

Mr. McGarry is also known for his detailed interest in PPG's far-flung operations. Among the projects Mr. McGarry follows closely, according to Tim Knavish, who oversees PPG's automotive coatings business: Research to speed up paint drying at lower temperatures, which could save on energy costs at car factories. "Michael's all over that," Mr. Knavish said.

Analyst Mr. Silversteyn is among those who think a $27 billion Akzo takeover could prove overly expensive and that PPG is better off concentrating on organic-growth prospects. But now, Mr. McGarry's tenure as CEO, which began in 2015, will likely be judged on whether the Akzo bid succeeds or if he walks away: "They've got the tiger by the tail and they've got to figure out what to do with it."

Write to Andrew Tangel at Andrew.Tangel@wsj.com

 

(END) Dow Jones Newswires

May 22, 2017 02:47 ET (06:47 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.