By Ben Dummett and Ian Walker 

LONDON--Elliott Management Corp., the big U.S. activist investor, on Wednesday threatened to use obscure Dutch corporate rules to force paint and chemicals giant Akzo Nobel NV to consider a sweetened EUR22.37 billion ($24.19 billion) bid from American rival PPG Industries Inc.

The Amsterdam-based company said PPG's Wednesday revised offer worth EUR88.72 a share, which comes just weeks after its initial EUR83-a-share offer was rebuffed, undervalues the company and doesn't warrant engaging with its U.S. suitor.

Elliott, which owns a 3% stake in Akzo, on Wednesday agreed that the new offer was too low, but the hedge fund stepped up pressure on Akzo to talk with PPG. Elliott said it might use Akzo's corporate bylaws to force a special shareholder meeting to address the PPG approach.

The unusual move comes as some analysts have said Akzo's Dutch corporate rules protect it--not make it more vulnerable.

In a call with reporters, Akzo Chief Executive Ton Büchner wouldn't say whether he had spoken with Elliott about the latest approach but confirmed that he spoke with the fund after the initial offer.

Akzo shares were down 1.8% to EUR75.25 in afternoon Amsterdam trading, suggesting investors remain skeptical about the success of PPG's overtures.

The standoff comes amid a wave of consolidation in the chemicals industry, including a $120 billion merger of U.S. giants Dow Chemical Co. and DuPont Co., and Bayer AG's planned $57 billion takeover of Monsanto Co., as the industry contends with weak growth and overcapacity.

Some analysts have considered Akzo's takeover defense a major obstacle to PPG acquiring its Dutch rival unless the two sides can agree on friendly terms. Akzo's articles include so-called priority shares, which give holders "ultimate discretion" over the composition of Akzo's management and supervisory boards, according to Olivetree Financial, a research firm that specializes in analyzing takeovers. The priority shares are held by Foundation Akzo Nobel, whose board is comprised of members of the company's supervisory board who aren't on the audit committee.

"There is no real way in which an unwanted suitor can force its way into Akzo, even with the progression of time," Olivetree wrote in a recent report.

However, Elliott is betting that it can successfully challenge the power of Akzo's priority shares if necessary. The activist fund manager argues that shareholders totaling at least a 10% stake in Akzo can call for a shareholder vote to remove members of the Dutch company's management and supervisory board members, if a majority of shareholders support the move.

If Akzo "is remiss in its governance obligations to shareholders, Elliott will consider appropriate remedies, including possibly requesting the convocation of an [extraordinary general meeting] of Akzo Nobel," the hedge fund said in a release.

In its new proposal, PPG offered EUR56.22 in cash and 0.331 PPG shares for each Akzo share. Its previous offer was EUR54 in cash and 0.3 PPG shares.

Akzo said a merger would lead to a large number of disposals because of overlaps in both geography and business lines, and would lead to significant job cuts.

Local politicians in the Netherlands share that concern, presenting another potential obstacle for PPG. Earlier this week, four Dutch provinces issued a statement warning that a deal would threaten the loss of more than 5,000 jobs due to potential overlap of the two companies' businesses.

The Dutch company also cited a "culture gap" between the two firms.

"We are convinced that Akzo Nobel is best placed to unlock the value within our company ourselves," Mr. Büchner said.

Mr. Büchner said Akzo plans to separate its special-chemicals division, a move it had said it was considering in response to PPG's initial unsolicited offer. He said the company was weighing various strategic options for the separation but hadn't yet decided which to pursue. The split will be reflected in Akzo's financial guidance "soon," he said.

PPG, whose brands include Pittsburgh Paints, Olympic and Glidden, said earlier this month that it continued to believe in the strategic rationale for the deal despite the initial rejection. In a statement Wednesday, PPG defended its latest offer, arguing it provides Akzo shareholders with "substantial" upfront cash and shares to benefit from any takeover. PPG said Akzo's board has so far declined to discuss any of the proposals.

The takeover tussle puts at odds two of the world's oldest industrial companies. Akzo Nobel, which counts Dulux, Sikkens, Interpon and Eka among its brands, was created from the merger of paint and chemicals companies in Sweden and the Netherlands that dated back more than a century. Among them was a chemicals firm founded by Alfred Nobel, who launched the prizes that bear his name. After the merger in 1994, Akzo acquired two of Britain's oldest paint and chemicals firms.

PPG, founded in 1883 as Pittsburgh Plate Glass Co., was the first U.S. company to successfully market large sheets of glass, until then an expensive rarity. It quickly expanded into chemicals to secure a supply of raw materials and was an early supplier of the automotive and aviation industries.

Monica Houston-Waesch

and

Christopher Alessi

in Frankfurt contributed to this article.

Write to Ben Dummett at ben.dummett@wsj.com and Ian Walker at ian.walker@wsj.com

 

(END) Dow Jones Newswires

March 22, 2017 10:00 ET (14:00 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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