Akzo Nobel NV spurned a sweetened, 22.4 billion-euro ($24.2 billion) takeover offer from PPG Industries Inc. (NYSE: PPG), marking the second time that Europe’s largest coatings company has rebuffed an overture from its U.S. competitor and sparking criticism from a shareholder.

PPG is offering Akzo holders cash and stock valued at 88.72 euros a share, the Amsterdam-based company said in a statement. The original bid valued the Dutch company at 83 euros a share at the end of February. As with the initial bid, which Akzo rejected March 9, the target said the latest offer is too low and not in the interests of shareholders and would lead to job losses. The new proposal doesn’t warrant Akzo engaging in discussions with PPG, Akzo said.

“This proposal significantly fails to recognize the value of Akzo Nobel,” Chief executive officer Ton Buechner said in the statement. The management and supervisory boards “have rejected it unanimously.”

“There have been various opinions among shareholders. It was our responsibility to balance these and we came to this decision,” Akzo CEO Ton Buechner said.
“There have been various opinions among shareholders. It was our responsibility to balance these and we came to this decision,” Akzo CEO Ton Buechner said. Bloomberg News

With the higher bid, Buechner is now facing growing pressure to negotiate with Pittsburgh-based PPG. Elliott Management Corp., the hedge fund founded by billionaire Paul Singer, said Akzo should begin talks with its U.S. competitor. One of the Dutch company’s biggest long-term investors was urging Akzo to carefully evaluate any new offer, people familiar with the shareholder’s position said earlier, asking not to be identified because the discussions aren’t public.

PPG’s second bid, while inadequate, is a “credible basis for engagement,” Elliott said in an emailed statement, adding that it would consider calling a shareholder meeting to remove the boards if Akzo fails to respond.

“There have been various opinions among shareholders. It was our responsibility to balance these and we came to this decision,” Buechner said on a call with reporters, adding that Akzo has been actively reaching out to investors to discuss the bids.

The latest offer is “inappropriate” and has been clearly and pragmatically considered, he said, declining to speculate about the possibility of a third proposal from PPG or a hostile offer.

“It remains to be see how far Akzo wants to go to defend itself against PPG,” KBC Securities analyst Wim Hoste said in a note.

In rejecting the original 20.9 billion-euro bid, Akzo said it plans to divest its specialty chemicals business, which accounts for one-third of revenue, to increase the focus on coatings. The company is pushing ahead with a breakup, Akzo said. PPG’s proposals would lead to a company with too much debt, and the combination would require “substantial” divestitures to gain approval from antitrust regulators, Akzo said.

“We are convinced that Akzo Nobel is best placed to unlock the value within our company ourselves,” Buechner said in the statement. “We are executing our plan, including the creation of two focused businesses and new cost structure, and believe this gives us a strong platform for continued profitability and long-term value creation for all our stakeholders with substantially less execution risks.”

Akzo will provide updated financial guidance and hold an investor briefing soon, the company said.

A combination of the world’s two largest coatings companies would attract intense antitrust scrutiny in Europe and the U.S. They have leading market shares of architectural paint in many European countries, with Akzo making brands such as Dulux and Hammerite and PPG producing Olympic and Pittsburgh brands.

The combination also would control more than half of the global aerospace-coatings market. Akzo has the No. 1 market position in general-industrial coatings and protective and marine coatings, while PPG has the No. 2 position in those markets, according to SunTrust analysts James Sheehan and Matthew Stevenson.

One of Buechner’s first major strategic decisions upon taking the helm in 2012 was to complete the sale to PPG of its U.S. architectural paints business, including 600 company-owned stores and the Glidden brand, for about $1 billion.

PPG CEO Michael McGarry is attempting the company’s largest ever deal just 18 months into the top job. As chief operating officer in 2014, McGarry spearheaded the company’s $2.3 billion acquisition of Consorcio Comex SA, Mexico’s largest paintmaker.

Combinations between U.S. and European companies have a history of cultural and political challenges. PPG has met resistance to it proposed Akzo deal from the Dutch government. Like many Dutch companies, Akzo has in place a stichting, or foundation, which owns priority shares and can be used to fend off hostile takeovers.

Dutch politicians are “very concerned” about the PPG overtures because of potential job losses, Buechner said on the call. The decision to reject the latest offer was made along with stichting administrators who are also on Akzo’s supervisory board, he said.

Until now, Akzo and PPG have stayed on the sidelines amid a spate of large deals in the paint and chemicals industries. Sherwin-Williams Co. would become the biggest coatings maker if its $9.3 billion deal to buy Valspar Corp. goes through. The U.S. Federal Trade Commission is reviewing that takeover.

Bloomberg News