By Jeff Sanford
Toronto, Ontario — March 13, 2017 — This week’s Tuesday Ticker includes the latest updates to PPG’s bid for AkzoNobel, top-level changes in LKQ’s management team, how Axalta is launching a share repurchase program and much, much more!
– The big news last week: PPG released an unsolicited $22 billion bid for AkzoNobel. Under the terms of the offer, “AkzoNobel investors would have received 54 euros in cash and 0.3 of a PPG share for each share of AkzoNobel they hold, equivalent to €83 a share.” That valued Akzo Nobel at €20.9 billion, or about $22 billion. AkzoNobel quickly rejected the bid claiming the offer “substantially undervalues” the company and its long-term prospects. For more on this, please see, “AkzoNobel rejects PPG bid.”
In the wake of the announcement the stock of both companies surged 13.06 percent and six percent respectively on Wednesday. As a result, shares of AkzoNobel ended up more than the PPG bid price, which is interesting. Typically in the wake of an announcement of a potential buyout, traders will jump into the stock if it is lower than the bid price. But on Wednesday the stock price of Akzo ended up higher than price being offered by PPG. That the price moved above the offer price suggests shareholders think another bid will be forthcoming. It remains to be seen whether PPG Industries will come out with a higher offer. Some analysts suggested as much.
One shareholder, Henderson Global Investors, called on Akzo management to engage in takeover discussions with PPG. Henderson Global holds a stake worth more than €150 million in AkzoNobel. The company said it wanted Akzo and PPG to take, “… a more constructive approach” to talks about a possible acquisition. “Regarding Akzo’s rejection of PPG’s offer, we would like to urge the management of AkzoNobel to engage with their counterparts at PPG,” the head of European equities at Henderson was quoted as saying. “We would also encourage PPG’s management to talk with Akzo shareholders to allow us to assess the merits of this initial proposal.”
PPG said it is “considering its options and may rebid, despite opposition from Dutch politicians to the deal ahead of a national election next week,” according to a report.
– The board of directors of LKQ unanimously selected Dominick P. Zarcone, the current Chief Financial Officer of LKQ, to become the new President and Chief Executive Officer. Robert L. Wagman has announced his intention to step down from the positions due to health considerations.
In addition, Joseph M. Holsten, LKQ’s current Chairman of the board and former CEO, was appointed as Executive Chairman. According to a press release, “Mr. Wagman will remain with the Company on a part-time consulting basis, and LKQ will immediately begin a process to fill the position of Chief Financial Officer as a result of Mr. Zarcone’s promotion.”
Zarcone joined LKQ in March 2015 after having advised the Company on numerous financing and acquisition transactions starting with LKQ’s initial public offering in 2003.
“I am extremely pleased with the choice of Nick Zarcone as the new CEO. Nick has been our Chief Financial Officer since March 2015 and has been an integral part of the LKQ story since he led the team at Baird that took us public in 2003,” Holsten was quoted as saying. “We are profoundly grateful to Rob Wagman for his dedication and commitment during more than 18 years with LKQ. We look forward to Rob’s counsel as a consultant on a part-time basis while he addresses his health considerations. In addition, I will be taking on an increased role at the company and we will collectively remain focused on our business in view of the long history of the three of us working together.”
LKQ also held an investor event recently in New York. Slides from the presentation recount the remarkable success LKQ has had over the last several years. As the company evolved from a wholesale salvage company to its current form that now includes divisions in Europe. Over that time revenue has increased dramatically, rising from $328 million in 2013 to $8.6 billion in 2016. The presentation also included some information on expectations the company holds concerning the increasing use of collision avoidance systems. According to LKQ it expects a 10 percent loss in business to the technology over the next fifteen years. The impact of crash avoidance systems will be lessened as the average age of the vehicle fleet—now about 11 years—continues to lengthen.
– 3M has been recognized for its ethics and integrity in doing business by the Ethisphere Institute. The organization placed 3M on its list of World’s Most Ethical Companies for a fourth year in a row. According to a press release, 3M’s Code of Conduct is central to its “… business playbook. Seen as a competitive advantage, 3M leaders create and promote a workplace environment where compliance and ethical business conduct are expected and encouraged through a strong tone at the top and leading by example.”
The Ethisphere Institute assesses companies on a series of levels, from compliance programs and corporate responsibility, to leadership and an enterprise’s culture of ethics. 3M scored the highest in the citizenship and corporate responsibility category, as well as the ethics and compliance program grouping.
– Axalta Coating Systems announced that its board of directors authorized a share repurchase program of up to $675 million. Axalta expects the share repurchases to be made from time to time in the open market. The pace of repurchase activity will be subject to the discretion of Axalta, and will be based upon market conditions.
– Scotiabank reiterated its Sector Perform rating on AutoCanada with a price target of $22.00 CAD. The current consensus rating on AutoCanada is ‘Hold’ with a consensus target price of $22.60 CAD per share. Shares in AutoCanada (which operates hundreds of collision repair bays as part of its dealership operations) were trading about a dollar above that price Monday morning.
– Advance Auto Parts announced it will accelerate growth and plans to open 75 to 85 new stores and “a state-of-the-art distribution center in 2017,” according to a press release. As a result of the new jobs created through expansion and existing career opportunities, Advance, “… expects to hire more than 15,000 team members this year across its family of companies, which includes Advance Auto Parts, Carquest, WORLDPAC and Autopart International.” Tom Greco, President and CEO was quoted as saying, “We’re pleased to expand our company’s presence this year as part of our long term growth plan … We are looking for talented people who are driven to deliver winning outcomes and take action while developing both themselves and others.”
Related Market Notes
– A recent strong job report suggests the American economy is growing smartly. The recent good news has led to speculation that the US Federal Reserve will raise interest rates at its meeting that begins today. Financial sector stocks were trading higher. The banking sector is seen as a big beneficiary if interest rates were to rise from the historically low level they have been at since the onset of the Great Recession. Insurance companies in particular have been struggling with low interest rates, which make it difficult to meet insurance claims (as insurance companies use the proceeds from large bond portfolios to finance operations).
– Others worry that stock markets are a bit too bullish these days. David Rosenberg, chief economist for Toronto-based Gluskin Sheff, released a report this week noting that stock market valuations are “stretched” according to “most measures.” He points to the Shiller price-to-earnings ratio (one ratio used to measure the value of stocks) is at the same level it was, “… during the dotcom bubble of 2000 and the 1929 market crash.”
Rosenberg also noted that average retail investors are rushing to invest in the stock market once it began hitting record highs. According to Rosenberg, investors, following eight years in which they have generally pulled money out of the stock market, have now, “… poured nearly $80 billion into mutual funds and exchange-traded funds in the post-election rally.”
Some professional investors note that it is historically the case that when the retail investor crowd begins pouring into the stock market it is not long before the market peaks. Rosenberg also noted that, at the same time as retail investors are getting back into the market, “… corporate insiders have been selling at the fastest pace in nearly 30 years.” Sale of stock holdings by corporate insiders is generally seen as a bearish sign, as insiders generally have a better sense of economic conditions than the general public.
