(Bloomberg) -- Akzo Nobel NV cut its 2017 profit target and announced the surprise departure of its finance chief, compounding the upheaval at the Dutch paintmaker after its rejection of a $29 billion takeover approach sparked a bitter shareholder battle.
Markets haven't picked up as expected, and Akzo Nobel has been impacted by China's crackdown on polluters, exchange rates, and Hurricane Harvey disruptions, Chief Executive Officer Thierry Vanlancker said on a call Friday. Even with extra cost cuts and price rises, profit growth will be below the 100 million-euro ($120 million) target, the company said in a statement.
Adding to the paintmaker's woes, Akzo Nobel said Chief Financial Officer Maelys Castella has stepped down for health reasons and a search for a permanent replacement is underway. This follows the sudden departure in July of Vanlancker's predecessor, Ton Buechner, who also fell ill.
“The proximity in timing of two health related departures of our board of management is bizarre in terms of coincidence,” Chairman Antony Burgmans told reporters. The changes come amid pressure on Akzo Nobel to deliver on 2020 financial targets that were retained on Friday and were part of its defense against the takeover bid by rival PPG Industries Inc.
Awkward
The timing of the profit warning is also awkward, coming on the same day as a shareholder meeting convened to vote in Vanlancker and defend its decision to rebuff the PPG offer. More than 98 percent of investors backed his appointment in a vote of confidence after activist Elliott Management Corp. called a truce over its criticism of the company's refusal to engage in talks with the Pittsburgh-based company, a move that irked some other investors.
Vanlancker blamed the profit warning on a combination of factors all coming together in the third quarter.
“Were we too optimistic at the beginning of the year? You may remember that the whole industry was pretty upbeat,” the CEO said on the call, adding that emerging trends were very difficult to foresee.
Akzo shares fell 1 percent to 77.81 euros at 3:24 p.m. in Amsterdam, giving a market value of about 20 billion euros ($24 billion). “The market was not a big believer” in the 2017 profit goal, Bank Degroof Petercam analyst Nathalie Debruyne said by email. “There also remains the speculative idea that PPG will come back.”
Speaking to shareholders today, Akzo Nobel executives scorned the “aggressive” nature of PPG's approach, with Burgmans highlighting the poor cultural fit between the two paintmakers. “Sometimes it's just oil and water, which leads to value destruction,” he said.
Bridges Burnt?
At the gathering in the Hilton Hotel, Amsterdam, shareholders quizzed Akzo Nobel on what it would take to engage in talks if PPG returned with another offer, with Burgmans saying both sides lacked “humility” and that's something that should have been handled differently. He refuted that there was zero engagement on their part.
On the immediate horizon, is the planned separation of its specialty chemicals business, on track for April. The remaining paint and coatings divisions will each be divided into four business units with full profit and loss responsibility. The paint division will be aligned on geographic lines, and the coatings division on product lines.
Vanlancker, a former DuPont Co. executive, was hastily ushered in as CEO in July when 52-year-old Buechner resigned. With Castella also suffering ill-health, Group Controller Hans De Vriese will take on the CFO position temporarily until a replacement is found. Other recent changes included the appointment of Ruud Joosten as chief operating officer, and David Allen as chief supply-chain officer.
Vanlancker said China's step-up in environmental inspections might be something structural, impacting competitors, suppliers, and rippling through industries in the country. Akzo Nobel also continues to wrestle with Brexit, which adversely impacts non-food products in the U.K., one of its top markets, and the downturn in the ship-building and oil-exploration market.
Legal Action
The standstill agreement with Elliott, defeated in its legal attempts to remove Burgmans for his role in turning down PPG, has taken the edge off what would have been a battle for the future of the company.
Elliott, one of Akzo Nobel's biggest shareholders with a 9.5 percent stake, vowed last month to refrain from any further legal action. It hounded the Dutch company to provide a detailed explanation why its plan eclipses the value of PPG's failed takeover bid. Having acquired shares in Akzo Nobel in December and built a holding worth almost 2 billion euros, the hedge fund still stands to benefit from any gain from a chemicals transaction.
Akzo has different teams working on a possible initial public offering or sale of the 10 billion euro chemicals division. Private equity firms, including a group comprised of KKR & Co. and CVC Capital Partners, have begun working on bids, according to people familiar with the situation.
For investors, the separation means a return of 1.6 billion euros. PPG could return with another offer later this year, as it is currently restricted under Dutch law after pulling its latest bid June 1. CEO Michael McGarry said July 20 it had put Akzo Nobel “in the rear-view mirror.”
To contact the reporter on this story: Ellen Proper in Amsterdam at eproper@bloomberg.net.
To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, John Bowker
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