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What are the secrets behind the game between buying a PPG and AkzoNobel without selling it

what are the hidden secrets of the game between PPG and AkzoNobel

March 16, 2017

[China paint information] in just two weeks, the game between PPG and AkzoNobel has been going on for several rounds. The big earthquake in the chemical industry has still left a aftersound, and the watchers can only wait and see its follow-up. Our company has provided a series of flat mouth, V-shaped or special fixture development

on March 2, 2017, PPG unilaterally invited AkzoNobel to discuss the establishment of a potential merger company. It is understood that PPG proposed to acquire AkzoNobel for 20.9 billion euros (about US $22.1 billion), with a consideration of 54.00 euros in cash per share plus 0.3 PPG industrial shares (equivalent to 83.00 euros per share on February 28, 2017, including 2016 dividends). But the confident PPG was soon "beaten in the face"

on March 9, 2017, AkzoNobel said that it had rejected the takeover offer of PPG, the world's largest paint company in the United States, saying that the tender "underestimated" the company and was detrimental to shareholders

on March 10, 2017, AkzoNobel issued a statement saying that the company was splitting its professional chemicals business, including but not limited to: establishing an independent listed entity

seeing here, everyone thought that this magnificent acquisition case was coming to an end. too young too simple. How can PPG, which has been premeditated for a long time, give up easily

on March 10, Dutch finance and economics reported that PPG was preparing to provide AkzoNobel with a second offer. The first offer of PPG was rejected by AkzoNobel on the ground that the offer was too low

on March 11, 2017, Reuters reported that Henderson global investment, one of AkzoNobel's shareholders, called on the company's management to negotiate with PPG industry. This proves that some shareholders of AkzoNobel are willing to discuss this matter, and the acquisition case may turn for the better

let's analyze how many icebergs are hidden under the surging acquisition

question 1: Why did PPG fall in love with AkzoNobel

this problem should start with the acquisition of Valspar by Xuanwei. On March 20, 2016, American coating giant Xuanwei announced that it would spend US $9.3 billion to acquire its peer Valspar. Prior to this, Xuan Wei and Valspar had a three-month negotiation. After the cooperation case was finalized, Xuan Wei announced it. Since then, in order to better understand the situation of Valspar and China Resources, Xuan Wei held a meeting with some executives of Valspar and major dealers of China Resources home decoration paint and furniture paint in Shanghai on May 3, 2016. On June 29, 2016, Valspar announced that its shareholders voted to approve the acquisition plan proposed by Xuanwei company. Xuanwei and Valspar expressed the hope that the transaction could be completed by the end of the first quarter of 2017

for this acquisition, Xuanwei and Valspar said that the two companies have highly complementary products, and the merger will strengthen Xuanwei's global coating and paint business and accelerate its expansion plans to the Asia Pacific region, Europe, the Middle East and Africa. Buying Valspar will help enhance the competitiveness of Xuanwei's product system in the field of civil coatings, packaging coatings and coil coatings

after the merger of Xuanwei, the third brother of global paint, and Valspar, the fifth brother, PPG global paint's "first brother" status was lost, and PPG was very panicked. The opportunity has come. According to Mike Harrison, an analyst at seaport Global Holdings LLC, in a note to clients, most PPG investors believe that the company's relatively low leverage can be used as an acquisition opportunity. Lower leverage can provide a rating buffer for PPG acquisitions. Choosing from one to another, PPG took aim at AkzoNobel, the second brother, and felt that AkzoNobel was the most consistent in all aspects. Moreover, AkzoNobel and PPG do not overlap in other major businesses except decorative paint business, and their businesses are highly complementary. To borrow the words of Michael McGarry, chairman and CEO of PPG, it is "we believe that the combination of the two companies will bring exciting strategic opportunities, in line with the best interests of the stakeholders of both sides, and create unique development opportunities on the basis of the success of their respective businesses through strong cooperation."

question 2: what is the difference between Xuanwei's acquisition of Valspar and PPG's acquisition of AkzoNobel

the author believes that there are three differences. First of all, after more than three months of negotiation with Valspar, Xuan Wei announced the acquisition with the approval of the other party. PPG unilaterally issued a takeover offer without consulting with AkzoNobel, which caused AkzoNobel's disgust. AkzoNobel confirmed that PPG industrial group has made a non negotiated, non binding and conditional takeover offer for the full equity disclosure of AkzoNobel. Moreover, on this issue, AkzoNobel also said that there was no dialogue with PPG, nor did he propose or accept any dialogue. Compared with Xuanwei's friendly acquisition, PPG's practice makes it suspected of hostile acquisition

secondly, it is announced that these factors enable the production speed of low-cost carbon fiber to keep up with market demand. Wei proposed an acquisition price of US $9.3 billion, which was unanimously approved by the two boards of directors. The $22.1 billion purchase price proposed by PPG was rejected by AkzoNobel. AkzoNobel publicly said that the bidding "underestimated" the company, failed to reflect the long-term value creation potential of the company, and was not conducive to shareholders' equity. At the same time, because it is related to substantive antitrust issues, pension plans and the realization method of synergy, it will cause greater risks to AkzoNobel. Compared with Xuanwei and Valspar, PPG and AkzoNobel have not reached a consensus on the purchase price from the perspective of demand

in addition, there is the biggest difference between the two acquisitions. Both of the acquisitions of Valspar by Xuanwei are from the United States, which are domestic mergers and acquisitions. While PPG is an American company, AkzoNobel belongs to the Netherlands and belongs to the category of cross-border mergers and acquisitions. Compared with domestic mergers and acquisitions, cross-border mergers and acquisitions are obviously more hindered, cultural differences, political barriers and other difficulties. In 2014, before acquiring Valspar, Xuan Wei bid to acquire Comex, the largest coating company in Mexico, but rejected the deal with the intervention of Mexican regulators. Later, after CEO John morikis came to power, he restarted the acquisition plan and acquired Valspar

question 3: Why did PPG fail to acquire AkzoNobel

in addition to the above three reasons for PPG's unfriendly acquisition method, low quotation and high risk, there are four reasons

the first is the political risks and protectionism in the Netherlands. Before the general election held in the Netherlands on March 15, Dutch nationalism was rising. At the same time, the Dutch side is increasingly vigilant about domestic companies being acquired

the second reason is that it will cause great losses to the future chemical development of the Netherlands. According to the Dutch "algemeen dagblad" on March 10, the Minister of economy henckkamp said that AkzoNobel is a pillar of the Dutch economy, so the company should remain in the Netherlands. AkzoNobel has 4900 employees in the Netherlands. After this acquisition, 1000 to 2000 jobs may be lost

more importantly, this acquisition may lose a lot of Dutch knowledge and research in the field of chemistry, because these may be transferred to new products and research and development in the United States. AkzoNobel invests 363million euros in research and development every year, which is crucial for innovation and sustainable development in the field of chemistry in the Netherlands. Another spokesman said that American enterprises do not pay much attention to research and development, they pay more attention to cost savings, while Dutch enterprises pay more attention to long-term development. Based on these considerations, the Dutch authorities may also prevent the acquisition

the third reason is that the acquisition may encounter significant competition problems in the United States and Europe

the fourth is the information revealed by TonB ü chner, CEO of AkzoNobel, in the interview. Don Bona is avoiding the development of green packaging and opening disruptive large-scale transactions that are changing its U.S. competitors (such as Xuanwei, Dow, etc.) to support conventional development and minor operational changes. Facing a series of major transactions in the coating chemical industry, Tang Bona said that he prefers to maintain discipline. AkzoNobel mainly focuses on internal growth and efficiency measures, investing more new products and more unique acquisitions in water-based coatings and other fields. Therefore, from this interview, it can be seen that Tang Bona may not agree with PPG's acquisition

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