Protective and decorative coatings company PPG Industries, Inc. (PPG) agreed Thursday to spin-off its commodity chemicals business to Georgia Gulf Corp. (GGC) for $2.1 billion in a cash and stock deal, creating a leading global chemicals and building products. The deal has the approval of the boards of directors of both companies. The deal was struck just months after PPG rejected a $1.9 billion buyout offer from Westlake Chemical Corp. (WLK).
The business will be created as a new entity and merged into Georgia Gulf, with PPG shareholders owning about 50.5 percent of the merged company, and Georgia Gulf shareholders owning 49.5 percent. The deal, primarily subject to approval by Georgia Gulf shareholders, is expected to close in late 2012 or early 2013.
"We are pleased to have reached this agreement as this transaction is another major step in our strategic transformation into a more focused coatings and specialty products company," PPG Chairman and CEO Charles Bunch said in a statement.
The deal is expected to realize annualized cost synergies of $115 million in the first two years. Debt financing has been committed by Barclays and J.P. Morgan Chase Bank for the deal.
The merged company will be led by Georgia Gulf's President and CEO Paul Carrico, with the board of directors consisting of the eight existing Georgia Gulf directors and three new PPG designated directors, including Michael McGarry, who is currently senior vice president of PPG's commodity chemicals business.
The merged company is expected to have annual revenues of about $5 billion, with about 6,400 employees working at more than 40 facilities, primarily in North America.
Separately, PPG reported a profit for the second quarter that increased from last year, reflecting improved pricing and lower input costs. Both earnings per share and quarterly revenues missed analysts' expectations.
"In the second quarter, PPG delivered the highest quarterly earnings per share in company history as a result of continued execution, strong cost discipline and effective cash deployment. These record earnings were achieved despite significantly weaker European and Latin American currency exchange rates and growth that varied by region and end-use market," Bunch added.
Pittsburgh, Pennsylvania-based PPG reported net income of $362 million or $2.34 per share for the second quarter, higher than $340 million or $2.12 per share in the prior-year quarter.
Excluding charges, adjusted net income for the latest quarter was $365 million or $2.36 per share. On average, 17 analysts polled by Thomson Reuters expected the company to report earnings of $2.37 per share for the second quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter edged down to $3.96 billion from $3.99 billion in the same quarter last year, and missed thirteen Wall Street analysts' consensus estimate of $4.15 billion.
PPG noted that negative currency translation reduced sales by $180 million and earnings per share by $0.10.
Performance coatings sales in the second quarter increased 1 percent to $1.24 billion, and sales at industrial coatings grew 2 percent to $1.10 million from last year.
Sales for the architectural coatings - Europe, Middle East and Africa or EMEA, decreased 2 percent to $601 million, while optical and specialty materials delivered sales of $314 million, down 4 percent from last year.
Commodity chemicals sales declined 9 percent to $427 million, and sales for glass segment edged down $1 million to $273 million from last year.
Looking ahead, PPG said it expects to offset the negative effects of inflation in the second half of the year with selectively higher pricing and lower commodity input costs. The company expects European business conditions to remain challenging, while expecting growth in North America and Asia to continue but to remain inconsistent by end-use market.
In Thursday's regular trading session, PPG is currently trading at $109.50, up $5.31 or 5.10% on a volume of 2.32 million shares, and GGC is currently trading at $33.66, up $4.81 or 16.67% on a volume of 3.63 million shares.
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