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Was PPG Industries’ Revised Offer to AkzoNobel Fair?

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AkzoNobel’s stock price growth

Since 2013, Akzo’s stock price has risen at a CAGR (compound annual growth rate) of 6.7% as of March 8. Considering Akzo’s stock price growth, PPG Industries’ (PPG) revised offer of 90 euros per share seems attractive, as it was ~40% higher than Akzo’s closing price of 64.42 euros on March 8.

Akzo’s shareholders appeared to be disappointed with the rejection of PPG’s proposal. The shareholders have urged Akzo management to engage in talks with PPG Industries regarding the takeover, indicating that shareholders are in favor of PPG’s takeover bid.

However, Akzo CEO Buechner said, “This proposal significantly fails to recognize the value of AkzoNobel. Our Boards do not believe it is in the best interest of AkzoNobel’s stakeholders, including our shareholders, customers, and employees. That is why we have rejected it unanimously.”

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If the proposal were accepted, the combined entity would have revenues above $30 billion, making it by far the largest coating company in the world. Plus, PPG Industries believes that a synergy of $750 million would have come from this transaction, which would have created great value for shareholders.

What next?

It remains to be seen whether PPG Industries will come up with another revised bid. Pressure from Akzo’s shareholders to consider the bid could bring Akzo’s management to the negotiating table. At present, Akzo seems to have other plans to spin off its Specialty Chemicals business, as management seems to believe that this would create more value for its shareholders.

Investors can hold PPG Industries indirectly by investing in the Vanguard Materials ETF (VAW), which invests 3.3% of its portfolio in PPG Industries. The top holdings of this fund include Dow Chemical (DOW), DuPont (DD), and Monsanto (MON), which have weights of 8.4%, 8.2%, and 5.9%, respectively, as of March 22, 2017.

In the next part, we’ll look into analysts’ latest recommendations for PPG Industries.

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