PPG Starts Share Exchange Offer

PPG Industries Inc. (PPG - Analyst Report) announced that it has started the share exchange program, which is a part of the deal to split off its Commodity Chemicals business. The split off is related to the separation and merger of Eagle Spinco Inc., a wholly-owned subsidiary of PPG, wherein it will own all the assets and liabilities of PPG’s commodity chemicals business. Eagle Spinco is then expected to merge with a subsidiary of Georgia Gulf Corporation (GGC).

Under the terms of the exchange offer, PPG shareholders can exercise the option of exchanging all, some or none of their shares of PPG common stock with shares of Eagle Spinco. These Eagle Spinco shares will then automatically convert to Georgia Gulf shares once the merger is complete.

For every $1.00 of PPG common stock, a shareholder will receive about $1.11 of Georgia Gulf stock. PPG said it currently expects to issue approximately 35.24 million shares of Eagle Spinco common stock in the exchange offer. The exact number of shares of Eagle Spinco common stock to be issued will be equal to the greater of 35.20 million or 1.02020202 times the number of shares of Georgia Gulf common stock outstanding immediately prior to the merger

The number of shares of PPG common stock that will be accepted in the exchange offer will depend on the final exchange ratio, the number of shares of Eagle Spinco common stock offered and the number of shares of PPG common stock tendered. PPG shareholders will be allowed to exchange shares till 8 a.m. New York time on January 28, 2013.

Few days back, PPG received a favorable private letter ruling from the U.S. Internal Revenue Service (IRS) related to the divestment of its commodity chemicals business. The receipt of the private letter ruling was a closing condition and an important objective for the completion of the transaction with Georgia Gulf.

In October 2012, PPG released its third quarter 2012 earnings. The company posted earnings of $2.24 a share for the quarter (excluding one-time charges), beating the Zacks Consensus Estimate by 3 cents. The adjusted earnings excluded charges of $9 million associated with the company’s move to divest its commodity chemicals business. Profit (as reported) rose 9% year over year to $339 million or $2.18 a share in the third quarter of 2012, aided by the company’s cost containment measures.

Revenue edged down 0.1% year over year to $3,845 million, missing the Zacks Consensus Estimate of $3,904 million. Sales were adversely impacted by unfavorable currency translation. PPG saw mixed results across its end markets while its North American automotive original equipment manufacturer (OEM) coatings business recorded strong growth in the quarter.

PPG Industries, which competes with the DuPont Performance Coatings segment of E. I. DuPont de Nemours & Co. (DD - Analyst Report), currently retains a short-term Zacks #3 Rank (Hold). We currently have a long-term Neutral recommendation on the stock.