Elliott, a private investment firm founded in 1977, and its affiliates (“Elliott”), a top 5 shareholder of Akzo Nobel N.V. (“Akzo Nobel” or the “Company”), hereby provides the following response to Akzo Nobel’s announcement yesterday rejecting a third proposal from PPG Industries Inc. (“PPG”) of 24 April, 2017.
Elliott views Akzo Nobel’s rejection of PPG’s third proposal without entering into any constructive form of engagement with PPG as a flagrant breach of Akzo Nobel’s Boards’ fiduciary duties and of Dutch corporate law, and as an arrogant dismissal of recognised principles of proper corporate governance. In addition, Elliott considers the reasons outlined by Akzo Nobel’s Boards for declining PPG’s third proposal to be unconvincing and unsupported by any available evidence.
Akzo Nobel claims that, by rejecting this third proposal from PPG, it is acting in the “best interests of shareholders and all other stakeholders“, stating that after an extensive review and a meeting with PPG “its own strategy is better and does not contain the risks and uncertainties inherent in PPG‘s proposal. “Elliott notes, however, that PPG has stated that the meeting “lasted less than 90 minutes,“ and was predicated at the start by a statement from Mr. Burgmans and Mr. Büchner that they “did not have the intent nor the authority to negotiate,“ and that Akzo Nobel “did not share any concerns regarding PPG‘s proposal, or analysis or comparison of their new standalone strategy versus PPG‘s proposal“ during the meeting. Following the meeting, Akzo Nobel needed little more than a day to conclude its “extensive review and careful consideration.“ It appears therefore, that this meeting, like Akzo Nobel’s meetings with its shareholders, was conducted for the sole purpose of being able to claim to have “met” and “engaged” with the relevant party, without the true intention to engage in a constructive manner. Elliott does not regard the meeting, as described by PPG, as clearing the threshold for constructive engagement with a bona fide bidder that stakeholders expect from boards properly fulfilling their duties, and that many Akzo Nobel stakeholders have been explicitly seeking.
Elliott believes that PPG’s third proposal sufficiently addresses the concerns expressed by the Boards to warrant Akzo Nobel’s sincere and constructive engagement with PPG. Moreover, Elliott notes that such engagement would be in the best interests of all stakeholders, including shareholders, pensioners, employees and customers. Akzo Nobel’s Supervisory Board, under the Chairmanship of Mr. Burgmans, has failed to fulfil its corporate governance duties by refusing to obtain, through constructive engagement with a credible bidder, the necessary information required to fully evaluate a bona fide proposal. Elliott is furthermore disappointed that Akzo Nobel continues to wilfully ignore the wishes of its shareholders, who strongly support sincere and constructive engagement with PPG. Not a single shareholder has publicly backed the Akzo Nobel Boards’ stand-alone strategy and stance of non-engagement, while 8 out of the 20 largest shareholders have publicly urged Akzo Nobel to constructively engage with PPG.
In Elliott’s view, the combination of Akzo Nobel and PPG has the potential to create a stronger company with superior growth and employment prospects than a stand-alone Akzo Nobel with a separate Specialty Chemicals business. However, irrespective of Elliott’s views in this respect, in order to fulfil their duties to stakeholders, the Akzo Nobel Boards must engage with PPG in a sincere and constructive manner and then undertake a full, detailed and fair analysis and comparison of both strategic alternatives. The muted market reaction to Akzo Nobel’s Investor Day on 19 April, 2017 demonstrates that few investors share the Company’s belief that its current management is best placed to unlock the value in the Company. Yesterday’s share price reaction is also telling in that regard.
Akzo Nobel’s Boards continue to demonstrate a disturbing and inexplicable tendency to act in their own, self-entrenching interests and against the interests of shareholders and other stakeholders. Elliott filed a petition with the Enterprise Chamber to enforce the rights of Akzo Nobel’s shareholders to hold the requested EGM to vote on the dismissal of Mr. Burgmans for failing to discharge his fiduciary and corporate governance duties. Elliott believes there is nothing “irresponsible, disproportionate or damaging“, as alleged by Akzo Nobel, about allowing shareholders to hold a democratic vote on Mr. Burgmans’ suitability to continue as Chairman and member of the Supervisory Board.