International Research Journal of Applied Finance ISSN 2229 – 6891

Vol. IX Issue – 2 February, 2018 www.irjaf.com

Case Study Series

Akzo Nobel and PPG: Takeover Bid and Shareholder Value

Ryan J. Rogala Allen B. Atkins*

Akzo Nobel Background

Business Description
Akzo Nobel is a headquartered in Amsterdam, Netherlands and currently stands at a 19.97
Billion Euros market cap. Akzo Nobel’s portfolio includes 48 subsidiary companies that
focus on three main product segments; performance coatings, specialty chemicals, and
decorative paints. Akzo Nobel is the world’s largest paint manufacturer and prides itself on
being the world leader in performance based coatings. Akzo Nobel is also one of the world’s
largest chemical manufacturers.

Strategy

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Akzo Nobel focuses on its strengths in these three product segments and seeks to further

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grow these segments stemming from additional geographical reach.

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The performance coating unit services industries such as water and waste management,
aerospace, oil and gas, marine coatings and many other areas of industrial coatings. Akzo

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Nobel currently holds the majority of the marine coatings and aerospace market share.
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The specialty chemical segment focuses on two segments, functional chemicals and industrial
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chemicals. Its functional chemical segment holds strong positioning in salt specialties, as well
as ethylene and organic peroxides. The industrial chemical segment is the top producer of
caustic lye, salt, and in Europe. Products within the specialty chemical unit are used in a wide
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verity of common household products such as soap, detergent and ice cream. (Bloomberg,
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2017)
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The decorative paints segment focus on products for the household end user that are sold in
retail stores. Akzo Nobel sells these decorative paints to Home Depot in the United States and
RONA in Canada under the Glidden brand. Its strongest performing segment has recently
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been in the premium division of its household paints.

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Akzo Nobel holds a majority of its sales in North America, Asia Pacific and Western Europe.
In total, it has sales in more than 80 countries and has recently leveraged the emerging
markets of Eastern Europe and Latin America for growth. Because a majority of the markets
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it sells to are mature, additional revenue growth is being sought in emerging markets as a
growth strategy.
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Financial Performance
Top line revenue has decreased between 2014 and 2016, from €14.86 billion in 2015 and
€14.20 billion in 2016. Approximately 40 percent of this revenue is from its performance
coating segment, 34 percent from its specialty Chemical segment, and 26 percent from its
decorative paints segment. Despite focus of growth in emerging markets, revenue by
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geography has remained relatively unchanged with 43 percent coming from Europe, 26
percent from Asia, 17 percent from the United States and Canada, and 14 percent coming
from Latin America and the rest of the world. EBITDA margin has seen improvement over
the last 3 years from 12 percent in 2014 to 15 percent in 2016. Its 2016 EBITDA margin is at
15 percent, 5 percent above its lowest EBITDA margin of 10 percent in 2010.

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 International Research Journal of Applied Finance ISSN 2229 – 6891
Vol. IX Issue – 2 February, 2018 www.irjaf.com
Case Study Series
Akzo Nobel has seen improvement of performance measures including profit margin, ROE,
and ROA. Profit margin has increased from 4 percent in 2014 to 7 percent in 2016. Over the
same time period ROE has increased from 9 percent to 14 percent and ROA from 3 percent to
6 percent. The 2016 revenue is slightly below that of 2014. However, due to an increase in
profitability, Akzo Nobel has seen an attractive 74 percent increase in EPS over the same
two-year period, despite a minor change in the number of shares outstanding. (Bloomberg,
2017)

PPG Background
Business Description
PPG manufactures and supplies a variety of products under brand names. They focus on
protective and decorative coatings as well as glass, fiberglass and specialty chemical
products. These products are similarly grouped into three business segments; performance
coatings, industrial coatings, and glass.

Strategy

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PPG operates in 42 countries with 156 manufacturing facilities and owns more than two
thousand retail stores globally. Products are sold to consumers through retail stores,

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distributers, home centers, paint dealers, and regional retail outlets.

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Today, a majority of its revenue is generated outside of the United States. Like Akzo Nobel,
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PPG’s growth plan is to expand its global reach to gain market share. PPG has strategically
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planned to grow market share inorganically through acquisitions. PPG has a strong history on
both sides of mergers and acquisitions and will likely continue on this path to reinforce its
current business units as well as diversify revenue streams.
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Financial Performance
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Top line revenue has decreased from $15.36 billion dollars 2014 to $14.75 billion in 2016.
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Over this time frame PPG has seen a 56 percent reduction in their glass segment to 481
million dollars. 2016 revenue was comprised of 58 percent performance coatings, 39 percent
industrial coatings, and 3 percent glass. Just under 54 percent of their revenue came from the
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Americas, 29 percent from Europe Middle East and Africa, and 17 percent from Asia.
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Performance measures have seen a decrease in quality from 2014 to 2016. EBITDA margin
has decreased from 15 to 11 percent, profit margin from 13 to 6 percent, diluted EPS from
$7.52 to $3.27, ROA from 12 to 5 percent, and ROE from 41 to 18 percent. Deterioration of
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these measures is partially due to an increase in losses from acquisitions, asset write-down
settlements, and restructuring expenses. As a result, these abnormal expense margins are
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forecasted to increase, yet still remain below 2014 levels.

Take Over Bid Proposal

In attempt to continue growth through acquisitions, PPG has made a takeover bid offer to
Akzo Nobel. The first offer was made public on March 8, 2017 and valued Akzo Nobel’s
shares at €83 per share. The news created volatility in PPG’s stock price however, the stock
price settled at €73 the following day. Prior to the first offer, Akzo Nobel was trading at
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€64.42 per share. Following multiple rejections and feedback from Akzo Nobel management
that the bid was undervaluing the company, PPG gave a third and final non-hostile offer to
Akzo Nobel of €96.73 per share. On May 8, 2017, Akzo Nobel declined the latest offer by
PPG.

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 International Research Journal of Applied Finance ISSN 2229 – 6891
Vol. IX Issue – 2 February, 2018 www.irjaf.com
Case Study Series
Synergies
If accepted, the offer by PPG would cause a substantial increase in business segments and
global market share. The result would mean an increase in performance coatings revenue of
60 percent, and a 100 percent increase in total paint segment revenue. Global market share
would result in an improvement of 200 percent in Europe and Asia Pacific revenue, as well as
a 25 percent increase in revenue from the United States and Canada. The acquisition would
also protect current market share of both companies from external threats such as Sherwin-
Williams, who is in the process of $9 billion acquisition deal. Analysts also estimate a $750
million cost savings between Akzo Nobel and PPG. (Tangel, 2017)

Akzo Nobel Management and Shareholder Discussion

Since the first takeover bid announcement by PPG, Akzo Nobel’s active shareholders have
been in support to accept the deal. Shareholders have found the takeover offer attractive,
consisting of cash and stock. The difference in opinion whether to accept or decline the offer
between Akzo Nobel’s management and shareholders has caused investors to take a more
active approach.

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“Rebel shareholders in Dutch paint maker Akzo Nobel want to oust the company

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chairman after Akzo refused to engage in takeover talks with U.S. rival PPG
Industries. Elliott Investors, one of Akzo's largest shareholders, said in a statement it

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was one of a group of investors that meets the Dutch legal threshold of 10 percent
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support needed to call an extraordinary shareholders meeting to vote on a proposal to
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remove Chairman Antony Bergman’s (Rebel, 2017).”

"We fail to see how Akzo Nobel could have a meaningful discussion with
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shareholders about its plans for a potential separation of the specialty chemicals
business while the alternative of a transaction with PPG is being effectively
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disregarded from the outset (Rebel, 2017)."

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"We believe the boards are willfully ignoring the interests of stakeholders in this
respect and that they are acting in a self-entrenching and obstructive manner (Rebel,
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2017)."
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Investors are pressuring Akzo Nobel’s management to hold talks with PPG, despite
management’s confidence in a different path for the company.
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Akzo Nobel’s management has proposed splitting the company into two businesses by
separating and selling off the specialty chemical business unit and returning money to
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shareholders. Akzo Nobel has stated that this plan will involve a special dividend and an
increase in future dividends.

Elliot Investors, the most active voice in the shareholder management discussion, has stated
that the dividends returned to shareholders will not offer the same value as the PPG takeover
would. Elliot Investors has criticized Akzo Nobel’s management in saying that if they do not
engage in talks with PPG then they cannot know which option is truly best for shareholders.
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(Alessi, 2017)

Management of Akzo Nobel may hold a society stakeholder view and has openly expressed
concern for employees if a takeover by PPG would occur.

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 International Research Journal of Applied Finance ISSN 2229 – 6891
Vol. IX Issue – 2 February, 2018 www.irjaf.com
Case Study Series
"We see that it (the bid) clearly undervalues the company and the second proposal that we
received did not address the key stakeholder issues and other issues like uncertainties and
risks that we had already raised in our response to the first proposal (Belfast, 2017).”

Management has stated that a merger would trigger “significant job cuts and create
uncertainty for thousands of staff across the globe (Belfast, 2017).” Akzo Nobel has 46,000
employees. Of those employees, 9,000 are attributed to the operations of the specialty paint
segment, the lowest employee count per product segment. Akzo Nobel has already seen a
decrease in number of employees over the last three years from 47,200 to 46,000 as a result
of continued restructuring.

Elliot Investors has offered contradiction to the concern of job security.

“Elliott said research by chemicals consulting firm ChemQuest showed that a
potential tie-up between PPG and Akzo would result in less than a quarter of the
layoffs that would be necessitated by Akzo’s stand-alone strategy.”

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Last month, Akzo announced plans to separate its specialty-chemicals
division through a spin-off or outright sale, as part of an effort to create more value

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for shareholders and resist an increasingly aggressive takeover bid by PPG.

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“Elliott believes there is a strong probability that Akzo Nobel employees would have
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greater job security and significantly more growth opportunities in a combined PPG
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and Akzo Nobel scenario than they would under the stand-alone scenario,” the
investment firm said in a statement.”(Alessi, 2017)
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Following the rejection of the third and final offer by Akzo Nobel’s management activist
investors still put pressure on management for change. On June 19, 2017, Akzo Nobel
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publicly announced that the CEO, Ton Büchner is stepping down for health reasons.
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(AkzoNobel, 2017)

With the new CEO vote to take place, this may also, provide an opportunity for investors to
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remove the chairman of the board who rejected the takeover bids from PPG. Activist
investors are still perusing these changes in hopes that PPG will make another offer in
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November of 2017. (Reuters, 2017)

Case Questions:
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1. Should Akzo Nobel’s management have been so disengaged from takeover

discussions with PPG?
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2. Why might large shareholders of Akzo Nobel decide to sue Akzo Nobel? Do they
have a case?
3. Was Akzo Nobel’s management right in turning down PPG’s offers based on share
value? The instructor may want to give steps here as a hint. Perhaps give a range of
values for Price per share that might be reasonable for AKZO.
4. What factors, other than share price, might have been considered in rejecting PPG’s
offers?
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5. For what reasons would PPG pay a premium to buy Akzo Nobel?

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 International Research Journal of Applied Finance ISSN 2229 – 6891
Vol. IX Issue – 2 February, 2018 www.irjaf.com
Case Study Series
References
Alessi, C., Hufford, A., & Tangel, A. (2017, April 24). PPG Raises Bid for Akzo Nobel to
$26.4 Billion. Retrieved April 27, 2017, from https://www.wsj.com/articles/ppg-
again-raises-bid-for-akzo-nobel-1493031520
Analysis of 2014 Annual Valuation Multiples of Specialty Chemical and Commodity
Chemical Transactions (Issue brief). (n.d.). Retrieved April 27, 2017, from Scott
Macon LTD website: file:///C:/Users/rjr242/Downloads/2014 Chem Trans
Valuations.pdf
Annual Report [Financial Performance]. (2017, March 1). Akzo Nobel
Bloomberg Database [Bloomberg Terminal, Function FA 9]. (n.d.). Retrieved April 27, 2017.
R. (2017, April 12). Rebel shareholders seek dismissal of AkzoNobel chairman in PPG
takeover fight. Retrieved April 12, 2017, from http://www.businessinsider.com/r-
update-1-rebel-shareholders-seek-dismissal-of-akzonobel-chairman-in-ppg-takeover-
fight-2017-4
U. (2017, April 03). AkzoNobel chief defends decision to reject takeover approach by PPG.
Retrieved April 11, 2017, from

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http://www.belfasttelegraph.co.uk/business/news/akzonobel-chief-defends-decision-
to-reject-takeover-approach-by-ppg-35589900.html

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Tangel, A. (2017, May 21). PPG Chief Paints Ambitious Picture in Bid for Dutch Rival.
Retrieved July 23, 2017, from https://www.wsj.com/articles/ppg-chief-paints-

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ambitious-picture-in-bid-for-dutch-rival-1495393170
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Alessi, C. (2017, May 05). Elliott Says Akzo Nobel's Independence Will Put More Jobs at
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Risk. Retrieved July 23, 2017, from https://www.wsj.com/articles/elliott-says-akzo-
nobels-independence-will-put-more-jobs-at-risk-1493991324
AkzoNobel CEO Ton Büchner steps down with immediate effect - Thierry Vanlancker
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announced as new CEO of AkzoNobel. (2017, June 19). Retrieved July 23, 2017,
from https://www.akzonobel.com/for-media/media-releases-and-features/akzonobel-
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ceo-ton-buchner-steps-down-immediate-effect
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Akzo Nobel faces dilemma over shareholder vote on new CEO. (2017, July 21). Retrieved
July 23, 2017, from http://www.reuters.com/article/us-akzo-nobel-ceo-
idUSKBN1A61DF?il=0
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EUR per 1 USD - Past 24 hrs. (n.d.). Retrieved July 23, 2017, from
http://www.xe.com/currencycharts/?from=USD&to=EUR&view=1Y
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 International Research Journal of Applied Finance ISSN 2229 – 6891
Vol. IX Issue – 2 February, 2018 www.irjaf.com
Case Study Series
Exhibit 1

AKZO Nobel Income Statement

Consolidated Statement by Segment, 12 Months Ending

(In Millions EUR) 2014 2015 2016

Revenue By Segment 14,296 14,859 14,197

Performance Coatings 5,589 39% 5,955 40% 5,665 40%

Specialty Chemicals 4,883 34% 4,988 34% 4,783 34%

Decorative Paints 3,909 27% 4,007 27% 3,835 27%

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Corporate and Other (85) -1% (91) -1% (86) -1%

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Revenue By Geography 14,296 14,859 14,197

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Europe
rs e 6,472 45% 6,380 43% 6,107 43%
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Asia 3,469 24% 3,796 26% 3,710 26%

US and Canada 2,193 15% 2,494 17% 2,351 17%

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Latin America 1,485 10% 1,483 10% 1,338 9%

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Rest of World 677 5% 706 5% 691 5%

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EBITDA 1,690 2,199 2,125

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Specialty Chemicals 815 48% 946 43% 960.69 45%

Performance Coatings 687 41% 988 45% 906.25 43%

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Decorative Paints 405 24% 521 24% 494.96 23%

- - -
Corporate and Other (217) 13% (256) 12% (255.04) 12%

EBITDA Margin 12% 15% 15%

Specialty Chemicals 17% 19% 20%
Performance Coatings 12% 17% 16%
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Decorative Paints 10% 13% 13%

Depreciation and Amortization 618 626 606

Interest Expense

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 International Research Journal of Applied Finance ISSN 2229 – 6891
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Case Study Series
157 125 98

Tax Expense 252 28% 416 29% 394 28%

Other and Extra Ordinary Losses 117 53 57

Net Income 546 979 970

Profit Margin 4% 7% 7%

Exhibit 2
AKZO Nobel Balance Sheet
Consolidated Statement by Segment, 12 Months Ending
(In Millions EUR) 2014 2015 2016

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Assets 16,299 15,963 16,196

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Specialty

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Chemicals 4,641 28% 4,570 29% 4,755 29%

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Performance
Coatings 4,243 26% 4,359 27% 4,674 29%

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Decorative Paints
rs e 4,610 28% 4,588 29% 4,511 28%
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Corporate and
Other 2,739 17% 2,446 15% 2,256 14%
Discontinued
Operations 66 0%
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Liabilities 10,032 8,983 9,162

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Corporate and
Other 5,225 52% 4,366 49% 4,349 47%
Performance
Coatings 1,680 17% 1,624 18% 1,811 20%
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Decorative Paints 1,833 18% 1,741 19% 1,687 18%

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Specialty
Chemicals 1,283 13% 1,252 14% 1,315 14%
Unallocated 11 0%
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Total Equity 6,267 6,980 7,034

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Number Of
Employees 47,200 45,600 46,000
Performance
Coatings 20,500 43% 19,300 42% 19,700 43%
Decorative Paints 15,200 32% 14,900 33% 14,700 32%
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Specialty
Chemicals 9,800 21% 9,100 20% 9,000 20%
Reconciliation 1,700 4% 2,300 5% 2,600 6%

*Per Employee Data

in Dollars

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 International Research Journal of Applied Finance ISSN 2229 – 6891
Vol. IX Issue – 2 February, 2018 www.irjaf.com
Case Study Series
Revenue Per
Employee 302,881 325,855 308,630
Income Per
Employee 11,568 21,469 21,087
Number Of Shares
Outstanding 250 Million

Exhibit 3
Comparison of Median Chemical Transactions
Multiples 2012-2014
Specialty Chemicals Sector (USD)
Sales Multiplies EBITDA Multiples
2014 2015 2016 2014 2015 2016

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All Closed Transactions 1.4x 1.7x 1.5x 9.9x 12.1x 9.7x

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Over $1 Billion 2.0x 2.7x 1.5x 10.1x 13.9x 10.0x

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Under $1 Billion 1.3x 1.7x 1.4x 9.6x 10.3x 9.7x

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Commodity Chemicals Sector (USD)
rs e Sales Multiplies EBITDA Multiples
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2014 2015 2016 2014 2015 2016
All Closed Transactions 0.6x 1.0x 1.2x 7.0x 8.9x 7.4x
Over $1 Billion 0.9x 1.2x 1.6x 6.5x 8.9x 7.4x
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Under $1 Billion 0.6x 1.0x 0.9x 7.0x 9.0x 8.2x

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 International Research Journal of Applied Finance ISSN 2229 – 6891
Vol. IX Issue – 2 February, 2018 www.irjaf.com
Case Study Series
Exhibit 4
Transaction Multiples Chemical Industry 2005 - 2014

Historical
HistoricalMedian
MedianMultiple
MultipleofofEBITDA
Sales
35
70 1.7 14.0x
1.8x
12.1
1.5 1.6x
30
60 10.7 10.4 1.4 1.4 12.0x
9.8 9.9
Transactions

9.6 9.5 1.3 1.3 9.5 9.7

9 9.1 1.4x
Transactions

25 1.2 1.2 10.0x

50 1.1 1.1 7.5 1.2x
20 8.0x
40 0.9 0.8 1.0x
33
15 30 6.0x
of of

26 65 26 0.8x
30 60 24
Count

10 21 52 4.0x
50 17 0.6x
Count

20 15 15
42 45 43
5 12 35 10 11 38 2.0x
30 34 0.4x

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10
0 20 0.0x
0.2x

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0 0.0x

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2005 2006 2007 2008 #2009 2010
of Transactions 2011 2012
Multiple 2013 2014 2015 2016

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# of Transactions Multiple

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Exhibit 5 rs e
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Currency Exchange Rate EUR/USD
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Average Rate March 8 – May 8th EUR/USD = .9320
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Authors
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Prof. Allen B. Atkins*

Professor of Finance, Department of Finance, W.A. Franke College of Business, Northern
Arizona University, Flagstaff, Arizona, USA, allen.atkins@nau.edu
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Ryan J. Rogala
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Department of Finance, W.A. Franke College of Business, Northern Arizona University,

Flagstaff, Arizona, USA
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*corresponding author
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