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    AkzoNobel and PPG: a Sustainable Combination?

    By Tony Mash
    SustainabilityBlog.jpg
    March 29, 2017

    One of the opportunities afforded by the strong dollar is that acquisitions outside the United States by American corporations become increasingly attractive. The potential purchase of AkzoNobel is an opportunity not to be missed by PPG and could, as the company has pointed out, deliver significant synergy savings that in turn could lead to a more profitable future for the combined company.

    However, it has been said that the path to Hell is paved with promises of synergies. Many mergers and acquisitions are unsuccessful and fail to meet expectations. With this in mind, I was therefore very interested to read AkzoNobel’s response to PPG’s second bid. It raised all the issues that dog acquisitions and dilute the very synergies that the target acquisition is expected to deliver. While AkzoNobel has raised a series of broad concerns about the future of the combined business in its response to PPG, the one point that caught my eye referred to the very different cultures of the two companies:

    The proposed acquisition “does not meaningfully address AkzoNobel's concerns regarding community contribution and sustainability and the significant culture gap between both companies, including how any issues arising from this would be addressed.”

    When ICI Paints was acquired by AkzoNobel, the purchase came with a well thought-out doctrine on sustainability that resonated well with the acquirer. Work on sustainability within the combined company flourished and led to the global leadership role that AkzoNobel has played in recent years, culminating in the company’s frequent nomination as the global lead in the Dow Jones Sustainability Index not just for coatings but also for the much larger materials sector. Not only has AkzoNobel led the way in terms of sustainability across the coatings industry, but it has also been a shining example and inspiration for the whole of the much larger global chemicals sector. A remarkable achievement!

    AkzoNobel’s response to PPG refers to its concern about the differences in culture between the two organisations, which not only has the potential to reduce the synergy savings over an extended period during which culture changes generally have to be managed, but it also threatens to dilute or even erase the sustainability ethic of the company as well.

    While PPG has addressed sustainability in a laudable way in the past, it is not in the same class globally as AkzoNobel in this regard, and my fear is that an acquisition would snuff out the critical leadership role that AkzoNobel plays in its drive for sustainable development and the delivery of its ‘Planet Possible™’ message.

    This difference in priorities has been exacerbated in recent months by the contrasting attitudes to climate change of the new government in the USA and the majority of other countries in the world including those in Europe and Asia. While over 140 countries signed the Paris Agreement on Climate Change in October 2016 including the USA, the thinking that is emerging from the Trump administration and the new head of the EPA in the United States is to question the existence, cause and criticality of climate change. Only yesterday, President Donald Trump signed an executive order rolling back Obama-era rules aimed at curbing climate change. In my view, the new political thinking in the USA is bound to impact the strategies of PPG, and consequently its policies not only in the States but also overseas.

    I personally hope that shareholders will support the response from the AkzoNobel board and that the company will not waiver from its current stance.

    Only time will tell if AkzoNobel can deliver a stronger financial prospectus to convince the financial markets that the acquisition by PPG is unwarranted. Assuming this can be achieved, it will allow the company to remain independent enough to continue to exploit its leadership role in sustainable development; the one key issue which, if not addressed effectively by Society as a whole, threatens the long term survival of our entire planet.

    KEYWORDS: sustainability

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    Tony Mash is the president of TMA Consulting Inc., a business consulting services company in the chemical and allied industry space with a current focus on Sustainability as applied to all aspects of the Global Coatings Industry.
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