Akzo Extends Olive Branch to Shareholders After PPG Battle (3)

(Bloomberg) -- Akzo Nobel NV, the Dutch paintmaker planning to split in two, is taking steps to repair relations with shareholders following a bruising battle with a U.S. suitor and an activist investor, and an overhaul of top management.

The Amsterdam-based company, which successfully rebuffed a $29 billion takeover approach from rival PPG Industries Inc., is creating a board committee for shareholder relations to be advised by JP Morgan Cazenove Ltd. and vowed to meet more often with investors to “strengthen and maintain a constructive dialogue,” according to a statement Tuesday. The company also convened a meeting Sept. 8 to vote in its new chief executive officer, Thierry Vanlancker, and explain its rejection of PPG’s unwanted offer.

Akzo Nobel shares fell 1.1 percent to 74.46 euros at 1:17 p.m. in Amsterdam, taking gains to 26 percent so far this year and valuing the company at 19 billion euros ($22 billion).

Akzo Nobel is emerging from a tumultuous few months that left relations with some investors in tatters. Activist hedge fund Elliott Management Corp. led a call for talks with PPG on its takeover bid. Adding to the upheaval, former CEO Ton Buechner suddenly resigned last week for unspecified health reasons, leaving Vanlancker, who only joined the company in 2016, to carry out the ambitious targets the company put forth as its defense against being sold.

Legal Challenge

In a sign of further change to come at the top, Chairman Antony Burgmans announced he plans to retire in April. He has born the brunt of opposition from Elliott to the company’s strategy, and the fund has taken legal steps to try to remove him. The company also said it appointed Ruud Joosten as chief operating officer, while Werner Fuhrmann will head the specialty chemicals unit it plans to spin off. Burgmans said Tuesday approval from shareholders would be sought at a later date for that transaction.

Elliott has maintained pressure on Akzo Nobel since PPG walked away from its approach June 1. The hedge fund is making a second attempt in court on Thursday to oust Burgmans and is pushing to shape the agenda of the shareholders’ meeting. The company said Tuesday investors won’t be allowed to put items on the agenda.

In a court tussle earlier this year in which Elliott lost a first attempt to remove Burgmans, a judge ordered the paintmaker to restore its relationship with shareholders.

Akzo Nobel also reported Tuesday earnings before interest and taxes decreased 6 percent to 461 million euros, according to a separate statement, missing the average estimate of analysts surveyed by Bloomberg of 500 million euros.

The results were “very disappointing,” Baader Helvea analyst Markus Mayer said in a note. “We doubt that Akzo has the ability to pass on higher raw material costs and therefore fear that the achieved cost saving will fade away over the coming quarters.”

Slower Hiring

The impact of raw materials was higher than anticipated at the beginning of the year, and raising prices has happened more slowly, Vanlancker said during an analyst call. The company plans to focus on keep costs down and slowing the rate of hiring, he added.

“We remain focused on executing our new strategy and continue to expect Ebit for 2017 to be around 100 million euros higher than 2016,” the CEO said in the statement. “This assumes no further material changes in market and economic dynamics, including foreign currencies.”

The maker of Dulux paint and Sikkens coatings promised in April to return 1.6 billion euros to shareholders this year, and set a target of 15 percent return on sales by 2020 for its paint and coatings business, and a return of 16 percent for specialty chemicals. Akzo Nobel also promised to spin off the chemicals division by April, of which the “vast majority” of net proceeds would also be returned to investors.

“We have put Akzo in the rear-view mirror and we’re looking forward to growing our business,” PPG CEO Michael McGarry said July 20 in response to an analyst’s question on an earnings conference call. Akzo hasn’t been in contact with PPG after its U.S. rival walked away, Burgmans said.

(Updates with banking adviser in second paragraph.)

To contact the reporter on this story: Ellen Proper in Amsterdam at eproper@bloomberg.net.

To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, John Bowker

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