How PPG lost its S$41 billion bet on Dulux paintmaker

Cans of Dulux paint, an Akzo Nobel brand, are seen on the shelves of a hardware store near Manchester, Britain, on April 24, 2017.
Cans of Dulux paint, an Akzo Nobel brand, are seen on the shelves of a hardware store near Manchester, Britain, on April 24, 2017. PHOTO: REUTERS

LONDON (Reuters) - In early March, US paint maker PPG's chief executive Michael McGarry flew from Pittsburgh to Amsterdam to take Akzo Nobel boss Ton Buechner for lunch.

There, the 59-year-old American ambushed Buechner with a takeover plan and price tag that his company had been working on for months, a source familiar with the talks told Reuters.

Rather than spark a discussion, McGarry's bold move at their March 2 meeting triggered a hard-nosed response.

"He was brutal in his approach and Akzo decided to respond in the same aggressive way," said the source.

The offer was rebuffed on March 9.

Akzo said the proposal was "not in the interests of its employees" and the firm would pursue different plans to sell its specialty chemicals business.

After two more offers were rejected, the Pittsburgh-based firm on Thursday dropped its bid, whose value had risen to 26.3 billion euro (S$40.8 billion).

The nature of the lunchtime meeting has not previously been reported, but other elements of PPG's pursuit emerged in news briefings and a May court hearing, exposing details of the takeover bid that would normally stay behind closed doors.

"The fact that it went public made the process difficult from the beginning," Bryan Iams, PPG'S vice president for corporate and government affairs, told Reuters in an emailed response to questions.

Akzo's spokesman Leslie McGibbon confirmed two face-to-face meetings took place, including the lunchtime appointment.

What PPG'S McGarry got wrong was the timing and the difficulty of pulling off such a deal in the Netherlands, where supervisory boards hold great sway and most companies including Akzo are protected by "poison pill" defences.

McGarry's message was delivered a fortnight before a Dutch general election on March 15, which included strong nationalist themes.

PPG's swoop on Akzo caused fury among the Dutch political establishment who turned its takeover plan into a political football to be used in the election debate.

McGarry, however, was determined to fight on for a deal that would give his firm access to some of the most popular paint brands in the world, such as Dulux.

"I don't think the political commentary changes the fact that there was a compelling strategic logic for the two companies to come together," said PPG's Iams.

Usually, takeover bids are followed by weeks of secretive negotiations as companies haggle over price and deal structure, and go on charm offensives with investors and regulators.

But for PPG, the three-month attempt at courtship brought snubs, lawsuits and barely any negotiation time with their counterparts at Akzo. Its second bid on March 20, worth 90 euros per share, was rejected within 48 hours.

"What was missing from the very start was dialogue," said the source.

Akzo took the position that if it engaged in talks, it would quickly become impossible to decline PPG's offer, which was financially attractive for shareholders but which it said was not in the best interests of other stakeholders.

PPG's main counterpart in merger and acquisition (M&A) talks was Elliott Advisors, which along with other major investors openly urged Akzo to engage in negotiations and tried but failed to oust Akzo chairman Antony Burgmans in court.

McGarry wrote an open letter to Akzo shareholders and visited the Netherlands twice to promote his plan, but met with little success. The PPG CEO said on March 23 that his visits were "not so much a charm offensive as a fact offensive".

Dutch Economic Affairs Minister Henk Kamp proposed a law giving any Dutch company targeted by a foreign firm the unrestricted right to refuse for one year.

PPG was turned away from meeting top politicians.

After the March 2 lunch, the second and last time PPG's McGarry met Akzo CEO Buechner was on May 6. McGarry, based in Pennsylvania, had been given barely 24 hours notice to get to Rotterdam in time. Akzo's chairman would also be there.

McGarry flew by private jet from the United States to make the 3 pm appointment, only to be told that Akzo's two top executives did not have any power to negotiate and were only there to hear any further elaboration on PPG's latest offer.

The meeting, which lasted 90 minutes, proved fruitless, despite an offer to Burgmans of a seat on the board of the merged company. Details of the dash to Rotterdam and the nature of that discussion emerged in a May 22 court hearing.

Akzo rejected PPG's third bid on May 8.

During the May hearing, Akzo's lawyer Jan de Bie Leuveling Tjeenk said McGarry "shouldn't squawk" about the wasted trip.

"He's the one who said he was willing to meet any time, anywhere," the lawyer said.

After a Dutch court ruled that Akzo's board was under no obligation to engage in talks, the American firm's prospects dimmed.

If PPG were to pursue a hostile offer by a June 1 filing deadline, Akzo's board still had one trump card: its poison pill defence that would give Burgmans and three other members of the supervisory board the power to make binding recommendations to the company's managing board.

Even a successful hostile bid could leave PPG powerless to control the merged firm.

In a last-ditch attempt, McGarry wrote to Burgmans on Monday.

"Although you declined to have my requested five-minute call, you indicated you would be open to receiving our views in writing. As a result, I am providing you with this letter," McGarry wrote.

The letter went on to say PPG would even consider raising its bid again and sweetening other terms.

Akzo said it received the letter but added that it didn't have time to respond. With the June 1 deadline upon them, PPG was left with little choice but to walk away.