PPG Industries (PPG: Quote), a manufacturer of protective and decorative coatings, Friday said it has reached a definitive agreement to acquire the North American architectural coatings business of Amsterdam-based paints maker AkzoNobel, N.V. (AKZOY: Quote,AKZOY.PK) in a deal valued at $1.05 billion.
The North American architectural coatings business is reported in the AkzoNobel parent company's Decorative Paints segment. It currently operates more than 300 company stores in the U.S., 240 in Canada and about 50 in the Caribbean.
The deal includes all AkzoNobel North American architectural coatings manufacturing and distribution facilities, paint stores, product lines and employees related to the production, sale and distribution of architectural coatings in the U.S, Canada and the Caribbean.
The deal has been approved by the boards of directors of both companies and it is expected to close in the second quarter of 2013.
The acquired business had 2011 revenues of about $1.5 billion and expands the company's customer reach in all three major North American architectural paint distribution channels.
The acquisition includes the addition of about 600 AkzoNobel-owned paint stores, creating a combined network of about 1,000 company-owned stores, serving the North American market.
The purchase also extends PPG's branded paint product offerings to more than 8,000 retail outlets and enhances the company's already strong presence in the independent paint dealer channel.
PPG CEO Charles Bunch said, "This acquisition continues the accelerated pace of our business portfolio transformation through further expansion of our coatings businesses. It is also 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."
Brands that are part of the deal include GLIDDEN, FLOOD, LIQUID NAILS, SICO and CIL. PPG also will license the DULUX, DEVOE architectural coatings brands, and SIKKENS architectural wood products.
PPG expects to achieve significantly improved net operating earnings of about $160 million for the acquired business over a three-year period. This includes a $60 million improvement immediately upon closing and a total of $90 million by the end of the first year.
The $60 million expected improvement includes costs that will not be incurred by PPG relating to defined benefit pension expense, amortization expense relating to previous AkzoNobel acquisitions and some administrative costs that will not transfer to PPG.
The expected incremental savings of $30 million by the end of the first year and an additional $70 million by the end of the third year after the deal include cost synergies stemming from overlap in administration, distribution and manufacturing.
Further, the company expects a base level of spending between $500 million and $750 million for share repurchases during 2013.
Bunch added, "Additionally, and in recognition of our strong cash position, we plan to reinitiate our share repurchase program immediately, following the completion of the separation of our commodity chemicals business, which we expect to occur in early 2013."
Even after the acquisition and share repurchase, PPG said it would still have a high level of cash. The company expects to continue to pursue further earnings-accretive cash deployment actions during 2013.
PPG closed up 0.5 percent at $125.21 on Thursday. AkzoNobel settled at 45.46 euros in Amsterdam.
by RTT Staff Writer
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