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Sunday, 19 November 2017

Calling off mega deals – the power of investors

Friday, 10 November 2017 | Posted by: Damir Gagro, European Coatings Journal

Two mega deals in the coatings industry were supposed to happen. Both were called off. Even though both deals were very differently, they had one thing in common: the investors played a prominent role.

At the beginning of the year PPG urged to acquire rival Akzo Nobel. The Dutch coatings producer, however, rejected offers from the U.S. American competitor multiple times. This displeased the investors of the hedge fund Elliott. The investor insisted that Akzo Nobel entered discussion with PPG. Antony Burgmans, Akzo’s chairman should step down from his position was another request from the investor. Elliott, the largest shareholder (holding 9.5%), could push any of these two issues through. In the meantime, investor and coatings producer ended their feud. Akzo Nobel nominated two new members for the board, a third nominee will be named after the coatings producers has gone into talks with its largest investors – Elliott being one of them.

Clariant and Huntsman collapse due to Whit Tale

A totally different story was the start of the second mega deal. The merger of equals was technically agreed on – technically. It would come as no surprise if both companies would have to divest certain assets to comply with all regulations. It is nothing unusual, as the Sherwin-Williams and Valspar deal has recently shown again. However, the coatings industry was only waiting for the final announcement telling the world the merger has been closed. The largest shareholder White Tale, which consists of Standard Industries and hedge fund Corvex, stood strongly against this merger. The investor raised his shares step-by-step to 20% and eventually was successful with its opposition. The deal was called off.    

White Tale seeks to further increase influence

Being successful with its opposition, White tail now enjoys tailwind. The investor demands three Clariant board seats and wants and an independent strategic review of the business. White Tale seeks to be present in board committees that are involved with strategic questions. A truce, as it has been called between Akzo and Elliott, is not in sight. The first speculations on Clariant being an acquisition target are already out. Clariant shares went up accordingly.

Of course, investors have the primary interest to increase the value of their shares. But these two examples show that probably short-termed maximization of profits were in the focus. The company is only used a means to the end. Interest of shareholders can but they are not obliged to be in line with long-term and sustainable business success of an enterprise. What do you think?

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