U.S. activist investor Elliott Management Corp. lost a legal battle Monday to remove Akzo Nobel NV's chairman, increasing pressure on PPG Industries Inc. to make a hostile bid for the rival Dutch paint and chemicals giant or abandon its monthslong takeover pursuit.
Earlier this month, Elliott took Akzo to court in the Netherlands to force Akzo to hold a special shareholder meeting on the dismissal of Antony Burgmans. Akzo, citing Dutch law, previously rejected the shareholder request for such a meeting.
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Elliott claimed that Mr. Burgmans failed to "discharge his fiduciary and corporate governance duties" after the Amsterdam-based company rejected PPG's latest, sweetened offer of EUR24.6 billion ($29.49 billion) without first attempting to negotiate a deal.
Akzo, which supports Mr. Burgmans, argues its stand-alone strategy to boost dividend payouts and spin off its specialty chemicals business and return the bulk of the proceeds to shareholders will generate more value. In defending its position, the paint maker has said its actions have met the highest standards of corporate governance in the Netherlands and complied with Dutch law.
Siding with Akzo, the Dutch business court rejected Elliott's request to allow for the vote to take place. The court said Akzo had analyzed PPG's bids "seriously" and that the dismissal of the company's chairman is a matter of strategy, which is for the management and supervisory board to decide -- not the shareholders.
Elliott can appeal the decision to the Dutch Supreme Court. A spokeswoman said Elliott was "surprised and disappointed" with the ruling. "Elliott is considering the implications of this judgment for shareholder rights in the Netherlands and for its next steps in relation to Akzo Nobel," she added.
"AkzoNobel is very pleased that the [court] has decided that its boards have acted in accordance with the highest standards of Dutch corporate governance and it confirms the position and actions of the Chairman," said Akzo spokesman Andrew Wood. The company will continue to engage in a constructive dialogue with its shareholders, he added.
In its ruling on Monday, the Dutch court also warned Akzo that it can't afford to ignore the rift with some of its shareholders over the company's strategy.
"A constant lack of confidence from a substantial part of the shareholders is detrimental for Akzo Nobel and all its shareholders," the court said.
The court said it would continue to assess whether it needs to call for an independent investigation into Akzo over whether the company has been sufficiently transparent with its shareholders about the process it took when rejecting the PPG proposals.
With its court challenge, Elliott was betting that a favorable shareholder vote -- or the threat of one -- to remove an important opponent to PPG's offer, could pressure the board to bow to deal talks.
At the hearing PPG Chief Executive Michael McGarry also urged the Dutch court, known as the Enterprise Chamber, to "do all that is necessary" to require Akzo to enter into negotiations, according to a transcript of the executive's statement. PPG said Monday that it remains open to deal talks with Akzo, but "without productive engagement, PPG will assess and decide whether or not to pursue an offer for Akzo Nobel."
The Pittsburgh-based paint maker, under Dutch law, must decide by June 1 whether to present its offer directly to Akzo shareholders, a move tantamount to launching a hostile bid. Its alternative is to shelve its bid for at least six months. PPG has appealed to the Dutch securities regulator to delay the cutoff date to June 14 or June 15.
Hostile takeover attempts are considered risky because they create a conflict for shareholder support. The acquiring company also doesn't have the benefit of due-diligence on the target company's operations that is typical in friendly transactions.
The Elliott-led investor group pushing Akzo to enter into talks could embolden PPG to attempt a hostile bid because the investors together own more than 10% of Akzo shares.
But that prospect still may not be enough of an incentive because Akzo's corporate structure could allow a group of current directors to thwart a takeover, even if PPG won over investors to complete a deal. That's because the Dutch company's controlling foundation and its four directors, including Mr. Burgmans, Akzo's chairman, retain exclusive rights to nominate replacement Akzo directors.
PPG has previously showed an unwillingness to launch a hostile bid against its rival. In 2013, the company privately approached Akzo about a possible tie-up but the effort didn't result in further negotiations and PPG ended the effort.
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(END) Dow Jones Newswires
May 30, 2017 02:47 ET (06:47 GMT)