Hedge fund Elliott Advisors has started legal action to oust Antony Burgmans, chairman of Akzo Nobel, as it seeks to force the Dutch paint maker to enter takeover talks with its US rivals PPG Industries.
In a letter, the fund said Akzo’s rejection of PPG’s latest takeover proposal was a “flagrant breach of Akzo Nobel’s Boards’ fiduciary duties and of Dutch corporate law.”
On Monday Akzo rejected what was PPG’s third offer, which valued the paint and coatings maker at €26.9bn including debt. Despite repeated calls from major shareholders to engage with PPG, the Akzo board has refused, arguing the takeover offer fails to address a number of concerns including value and the impact for its workers.
Elliott on Tuesday said it had filed a suit with Amsterdam’s Enterprise Chamber to ask a judge to order an extraordinary meeting of shareholders in order to debate the dismissal of Mr Burgmans.
Dutch law says any shareholder with a 10 per cent stake can ask the company to call an extraordinary meeting. Elliott has 3.25 per cent, but has recruited support from a group of institutional investors to give it it necessary level of support to seek such a meeting, but the company has declined its request.
The company has expressed support for Mr Burgmans and argued an EGM would not be in the company’s best interests.
Corporate governance experts say that the chances of a successful hostile bid by PPG are slim. Akzo has a unique, decades-old, Dutch anti-takover defence that makes it practically impossible for shareholders to overthrow the company’s board and install directors who would favour a deal.
This is a foundation consisting of four Akzo directors who hold 48 priority shares in the group, and have the right to use this stock to make binding nominations to the management and supervisory boards in any situation where the independent body deems the interests of the company and its stakeholders to be at risk.
The foundation’s priority shares were introduced in 1926, according to people who have studied the structure closely. They added that a general meeting of shareholders could not overrule these binding nominations.
The possibility to challenge a binding nomination was only allowed under Dutch corporate law in 1928, but the reform allowed arrangements established before that date to remain in place — therefore it is difficult to overcome Akzo’s anti-takeover defence.