The time has come for AkzoNobel to talk to PPG Industries about a deal. The Dutch paints group was right to resist its United States suitor's first two proposals.
But, the latest, valuing Akzo's equity at €24 billion (S$36.4 billion), is clearly a basis for discussion. PPG says it is willing to buy Akzo for €15 billion in cash, plus PPG stock worth €9 billion.
At approximately €96 per share, that's a 49 per cent premium to Akzo's share price last month, before PPG's interest emerged.
The premium is well above what would normally facilitate talks. So it should be. Including assumed debt, the pitch values Akzo at some €27 billion, or 12 times this year's forecast Ebitda.
Still, it's hard to be certain that Akzo's stand-alone strategy could get the stock above the offer level in future. Most analysts value Akzo at less, on a stand-alone basis.
There's still plenty to negotiate. PPG has tried to address Akzo's broader stakeholder concerns. It says it will locate certain divisional headquarters in the Netherlands and pay a break fee that would compensate for business damage if the deal failed after a long regulatory review. That fee needs to be big.
Moreover, PPG's promises on jobs amount to little more than obeying the law and respecting existing contracts. It's not clear whether this is much more or less fair to employees than Akzo's own cost-cutting plan.
Akzo's previous objection to the leverage PPG would absorb looks hard to sustain given the bidder remains confident of maintaining an investment-grade credit rating and Akzo itself is planning a substantial cash return. PPG chief executive Michael McGarry is threatening to go hostile if his new offer doesn't bring Akzo to the negotiating table.
Assuming Akzo can be comforted over its stakeholder concerns, could it extract a higher price from PPG for a recommendation? An offer at a clean €100 per share would imply an all-in purchase price of €28 billion.
It's plausible that Akzo could contribute €2.6 billion to PPG's operating profit in 2020, taking analyst forecasts plus the bidder's current synergy estimates. After tax, that would suggest a return of 7 per cent on the deal after three years.
To get to Akzo's cost of capital, estimated by Raymond James Financial at 7.6 per cent, PPG would need to find more savings in talks - or, hope its investors tolerate a more distant payback. With PPG's stock rising, its shareholders aren't obviously scared about a deal at these levels.
Akzo's resistance to PPG has nudged the offer price more than might have been possible through engagement earlier. From here, talks might just eke out a bit more still.
•This column does not necessarily reflect the opinion of Bloomberg LP and its owners.