TEXT - Fitch comments on PPG Industries
Dec 14 - PPG Industries, Inc. (NYSE: PPG) announced today that it has signed a definitive agreement to acquire the North American architectural coatings business of AkzoNobel N.V. (AkzoNobel) for $1.05 billion, including the assumption of $175 million of liabilities. The transaction is expected to close during the second quarter of 2013. AkzoNobel's North American architectural coatings business is the second largest in the United States and has a leading market position in Canada. This business had $1.5 billion of sales during 2011, with roughly 60% derived from the U.S. and the remaining 30% and 10% from Canada and the Caribbean. Similar to PPG's U.S. architectural coatings business, AkzoNobel has strong participation in all three distribution channels. AkzoNobel has 600 company-owned stores and also markets its products through major national home centers and independent distributors. The combined operations will increase PPG's company-owned stores from 400 to roughly 1,000 and expands the company's branded paint product offerings to a total of more than 8,000 retail outlets and 6,000 independent distributors. Additionally, the acquisition will improve the global balance of PPG's architectural coatings sales, expanding the company's North American position to a slightly larger size than Europe, the Middle East, and Africa. This acquisition is consistent with management's strategy of further transforming PPG into primarily a coatings and specialty products company. Furthermore, the acquisition is in line with Fitch's expectation that PPG will pursue suitable acquisition opportunities to replace lost revenue, EBITDA and cash flow from the pending separation of its commodity chemicals business. PPG expects to pay $875 million of cash for the acquisition, which will be funded by existing cash on hand. In addition, the company also announced that it will reinitiate its share repurchase program immediately following the completion of the separation of its commodity chemicals business. The company expects to repurchase $500 million-$750 million of stock during 2013. PPG also has $600 million of senior notes that mature in March 2013. Fitch believes that the company will fund the expected $2 billion to $2.5 billion of cash outflows with cash on hand. At Sept. 30, 2012, PPG had $1.39 billion of cash and $619 million of short-term investments. The company's cash position will be further increased next year with the expected receipt of $900 million of cash from the separation of its commodity chemicals business, which is expected to close during the first quarter of 2013. Fitch expects to meet with the management team in the next few weeks to further review the acquisition, management's strategy to integrate the operations and the company's liquidity profile following the planned transactions. Fitch currently rates PPG with a Stable Outlook as follows: --Long-term IDR 'A-'; --Senior unsecured debt 'A-'; --Unsecured revolving credit facility 'A-'; --Short-term IDR 'F2'; --Commercial paper 'F2'.