--PPG to Buy Akzo Nobel's North American architectural coatings
unit
--PPG will pay $875 million in cash and take on $175 million in
debt
--The company sees the deal positioning it to capitalize on a
U.S. construction market recovery
(Updates with details throughout, share movement)
By Saabira Chaudhuri
PPG Industries (PPG) has agreed to buy the North American
architectural coatings business of Amsterdam's Akzo Nobel NV
(AKZOY, AKZA.AE) for $875 million in cash as the paints and
chemicals supplier looks to boost its exposure in the region ahead
of a recovering U.S. construction market.
The acquisition includes all Akzo Nobel's North American
architectural coatings manufacturing and distribution facilities,
about 600 company-owned paint stores, and product lines such as
Glidden, Floor and Liquid Nails.
The business, which had 2011 revenue of about $1.5 billion, will
give PPG a combined network of about 1,000 company-owned stores in
North America. The acquisition also extends PPG's branded paint
product offerings to more than 8,000 retail outlets and enhances
its presence among independent paint dealers. PPG had 2011 sales of
$14.9 billion.
PPG Chief Executive Charles E. Bunch characterized the deal as
"an attractive way to significantly increase our scale in the North
American architectural paint market, which we anticipate will
benefit from a prolonged construction market recovery."
Shares of PPG climbed 5.4% to $132 in recent trading. The stock
has risen 63% in the past twelve months.
The deal, which has been approved by the boards of both
companies, is expected to close in the second quarter. PPG will
also assume $175 million in debt related to Akzo Nobel's Canadian
pension plans.
Akzo Nobel--a Dutch paints and coatings supplier--has been
struggling with tough trading conditions in Europe and is shedding
the paints unit after four years of losses and restructuring. Akzo
Nobel wrote down the value of its paints assets by $3.25 billion in
October.
U.S. Deco, as the Akzo Nobel unit is known, has been hit hard by
the slump in the U.S. construction and housing market, struggling
to compete with bigger U.S. rivals, such as PPG and
Sherwin-Williams Co. (SHW).
Akzo Nobel originally acquired the business as part of its 2008
acquisition of U.K. chemicals company ICI. The unit contributed
about 7% of Akzo Nobel's total 2011 revenue.
U.S. Deco "lacks critical mass and reaching the level needed
would require significant funds and management attention," which
Akzo Nobel isn't prepared to invest despite signs of a recovery of
the U.S. housing market, Chief Executive Ton Buechner said. The
company expects the division to break even at the operating level
in 2012.
Akzo Nobel has said it will use the $875 million from the sale
to pay down debt and invest in higher-growth markets. It plans to
focus on Europe, but emphasized it continues to have a strong
presence in North America through its performance coatings and
specialty chemicals businesses, which had combined 2011 revenue of
over $2.7 billion.
PPG executives acknowledged on the call that Akzo has struggled
in North America, but they said the combined business will benefit
from increased scale and distribution and it expects the unit to be
a "solid cash generator."
To fully integrate the U.S. Deco unit, Mr. Bunch estimated the
company would spend $100 million over the next few years. PPG
expects to record net operating earnings of about $160 million for
the acquired business over a three-year period.
PPG also said it will reinitiate its share repurchase program as
soon as it finishes splitting off its commodity chemicals business,
likely to happen in early 2013. The company expects to spend
between $500 million and $750 million on share repurchases next
year.
Laurence Alexander, an analyst at Jefferies, said the deal,
along with the share buyback, will likely add 35 cents to 65 cents
to the company's earnings in 2014.
--Robert Van Den Oever contributed to this article
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
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