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PPG to Buy AkzoNobel's Coatings Biz

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PPG Industries Inc. (PPG - Free Report) announced that it has struck a deal with AkzoNobel, N.V., Amsterdam to buy the latter’s North American decorative paint business for $1.05 billion. The deal has been approved by the board of directors of both the companies. It is expected to close early in the second quarter of 2013.

PPG will acquire all the North American architectural coatings manufacturing and distribution facilities, paint stores and product lines of AkzoNobel. The acquisition will include all the employees who are engaged in the production, sale and distribution of architectural coatings in the United States, Canada and the Caribbean. It will also add 600 AkzoNobel-owned paint stores to PPG’s portfolio. PPG will also expand its branded paint product offerings and cater to more than 8000 retail outlet after the acquisition.

The acquisition is expected to enhance PPG’s coatings portfolio and increase its presence in the North American architectural paint market. PPG expects to achieve net operating earnings of about $160 million over a three-year period, which includes $60 million improvement immediately, upon closing of the deal and a total of $90 million by the end of the first year of acquisition.

PPG also announced plans to reinitiate its share repurchase program once the company completes the divestiture of its commodity chemicals business. The company expects to spend between $500 million and $750 million for share repurchases during 2013. In July this year, PPG announced that it would divest its commodity chemicals business to Georgia Gulf Corp. for $2.1 billion

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, 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 Industries saw mixed results across its end markets in the quarter while its North American automotive OEM coatings business recording strong growth.

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

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