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PPG Industries Inc. (NYSE:PPGC), formerly known as Pittsburgh Plate Glass Co., is embroiled in a contentious attempt to buyout Dutch competitor, Akzo Nobel NV. Most recently, PPG offered 96.75 in cash and stock for each share of Akzo, an offer refused by the target company.

This leaves PPG some risky and unpleasant options including a hostile bid or a complicated and lengthy legal process. Another option, of course, would be for PPG to give up and put its money elsewhere.


A Stichting Problem

Like many large Dutch corporations, Akzo Nobel has a foundation called a “stichting” that owns priority shares in the company. The stichting has the right to appoint management. Since a merger between PPG and Akzo would result in the Akzo portion accounting for more than half the combined company’s sales, the net result could be that PPG owns a company over which it has no control.

The solution is to have the cooperation of the stichting, something unlikely to happen since the foundation board consists of four members of Akzo’s supervisory board, including Chairman Antony Burgmans, who strongly opposes the merger.

Shareholders Receptive

Adding to the chaos, PPG has support for its takeover bid from some of Akzo’s key shareholders, including U.S. activist investor Eilliott Management Corp. Elliott has been putting pressure on Akzo to accept the deal, so far to no avail. This despite a report, commissioned by Elliott that forecast big job losses at Akzo Nobel if the merger didn’t take place.

Should PPG take its bid directly to shareholders in a public tender, the multi-national nature of the action could create all kinds of rancor. Among the issues there would be the stichting problem as well as Dutch law that would require PPG to publish a draft of its tender by June 1.

Lessons Learned

Based on other M&A attempts in which suitor and target had major differences, PPG may lose no matter which direction it goes. In 2015, Monsanto Co. (:MONN/A) gave up on a $46 billion cash and stock bid for Swiss rival Syngenta AG (NYSE: SYT).

As a result, China National Chemical Corp. ended up buying Syngenta and last year Germany’s Bayer AG bought Monsanto for $57 billion. Still there are those who PPG could prevail. If investors are as favorable toward a merger as some news reports suggest that could create enough pressure for the Akzo board to cave in.


Possible Government Involvement

The Dutch government is currently entertaining a cooling-off measure of between 6 and 18 months for any Dutch companies embroiled in a hostile takeover bid. This obviously includes Akzo Nobel. The measure was brought forward by former ING chief Jan Hommen and others.

During the period, if it is enacted, Akzo Nobel would have time to build and maintain its own defenses against the hostile takeover. According to employer lobby group VNO-NCW chairman, Hans de Boer, “We cannot be a passive witness to a move which will be to the detriment of the Netherlands” De Boer added that the playing field has been influenced by the artificially low exchange rate of the euro and U.S. President Donald Trump’s ‘America First’ policy.

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