Low-Key PPG Chief Makes Noise in Akzo Hunt -- WSJ
May 22 2017 - 3:02AM
Dow Jones News
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)
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