We should put pressure on PPG to come up with a plan for AkzoNobel
|Datum:||07 april 2017|
Imagine a man walks up to a woman and, without introducing himself, proposes marriage. Because the woman doesn’t know the man, and because she has a somewhat different plan for her life, she declines the offer. How many of us would object to her doing so? Now imagine that that women was told: if you want to reject this man, you need to explain why, and you need to tell us why you think you’d be better off alone. How many of us would find that an outrageous suggestion?
And yet this, effectively, was what Errol Keyner, deputy director of the Vereniging van Effectenbezitters, told AkzoNobel, when speaking on BNR Nieuwsradio. According to him Akzo needs to sit down with PGG, because anything less would be childish (‘het speelkwartiertje is voorbij’, ‘playtime is over’), and if Akzo isn’t going to accept PPG’s offer, then they needs to tell us what how it plans on growing without PPG. Keyner explains that they need to do this because ‘de beurs is niet voor angsthazen’ (‘the market doesn't appreciate uncertainty’). This, in my opinion, is as backwards, and as outrageous, as suggesting that a woman needs to explain why she doesn’t want to marry a man she never met.
Mergers and acquisitions are an extremely risky way of doing business. Research suggests that about 70% fail. And when they fail, they fail badly. Daimler, for example, bought Chrysler in 1998 for $37 billion (for the same sorts of reasons that PPG is looking at Akzo). Daimler lost $1 billion a year through Chrysler for ten years (as it tried to realize the sorts of synergies that PPG is looking for with Akzo) and when Daimler finally gave up, and diverted Chrysler in 2008, it had to pay an investment company $650 million to take it off its hands. Daimler is an extreme case, but it’s not an unusual one.
In fact, research suggests that 65% of mergers and acquisitions end with a divestiture – or a divorce to keep the analogy going – within 5 years. What is more, the research shows that the bigger the deal, the worse it gets. Research on 4,000 mergers and acquisitions in the last merger wave, for example, published in the Journal of Finance, suggests that in the case of the largest 87 deals, worth more than $1 billion, shareholders lost $2.31 on every $1 invested. The authors concluded that shareholders would have been better off if managers had just burned their cash.
Rather than pressuring Akzo to explain why it doesn’t want to be acquired, and what it plans on doing without PPG, I think, therefore, that we should be putting pressure on PPG to tell us what are they going to do to make sure that they don’t destroy Akzo, as so many acquirers have destroyed so many targets before them. Akzo is, after all, part of our national silverware.
And while I would agree with Keyner that ‘de beurs is niet voor angsthazen’, I think that the responsibility is on PPG, and not Akzo, to come up with a plan, to reassure the market. At the moment, however, PPG is offering nothing, but a pot of gold, to buy off investors, with their eyes on short-term profits.
Dr Killian McCarthy is Assistant Professor at the University of Groningen, an economist by training, and a specialist in the performance of mergers and acquisitions.