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Shareholders take Akzo Nobel to court in effort to aid PPG takeover

[AMSTERDAM] Akzo Nobel shareholders angered by the Dutch paint maker's rejection of a 26.3 billion euro (S$40.8 billion) takeover offer from US rival PPG Industries on Monday took their fight to an Amsterdam court.

British hedge fund Elliott Advisors, with support from several long-term institutional investors, will try to convince judges at the Amsterdam Enterprise Chamber to order an investigation into possible mismanagement by Akzo's board and force an extraordinary meeting of shareholders to vote on dismissing Chairman Antony Burgmans.

As dozens of lawyers and journalists packed the courtroom for the hearing in the high-stakes corporate battle, PPG's Chief Executive Michael McGarry shook hands with Mr Burgmans.

A ruling is expected within a week, soon enough for PPG to decide whether it wants to submit a formal bid to Dutch regulators without the support of Akzo's board on June 1 or walk away for at least six months.

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Both sides face difficulties, however. Dutch lawyers say it will be tough for the shareholders to convince judges that Akzo's corporate governance has been so poor as to warrant an investigation.

Akzo, meanwhile, faces a potentially awkward public questioning of its reasons for rejecting PPG's offer on May 8.

Shares in Akzo opened nearly flat at 75.48 euros on Monday, well below PPG's 96.75 euros per share offer made on April 20.

Akzo has argued that the takeover would be bad for employees, that the companies' cultures don't mesh, that the deal faces antitrust risks, that the merger would be bad for the environment and that Akzo should remain Dutch in the country's national interest.

Those arguments have met with scepticism in some quarters.

"PPG is an industrial company ... that has come with a serious proposal and I think Akzo has the duty, both to its shareholders and to its employees, to explain why it wants to go it alone," said Paul Koster, of Dutch shareholders' association VEB.

Akzo will also be questioned on its alternative to embracing PPG - a plan to sell a third of its operations and pay shareholders a hefty dividend.

PPG, which will also answer questions at the hearing, must decide whether Akzo is worth pursuing, given the unusual company charter that provides the Dutch business with a powerful poison pill defence.

Akzo's charter gives shareholders the right to dismiss managers and also allows four members of the supervisory board, including Burgmans, to form a "foundation" that has the right to name new managers and other board members when the company faces a hostile takeover.

"Shareholders can fire managers, but they can't name the new ones. The Foundation can name new managers who are in favour of the old situation, so you get a vicious circle," said Bas Steins Bisschop, professor of corporate law at Maastricht University.

In other words, PPG could be buying a company it can't control.

"The court will test whether that circle can be broken, and to do that it's going to look closely at PPG's intentions and the structure of its offer," Bisschop added.