NEW YORK (Reuters) - PPG Industries Inc. (PPG.N), which makes paints and coatings, is in exclusive talks to buy Dutch rival SigmaKalon for 2.2 billion euros ($3 billion) to broaden its portfolio and boost its European sales.
PPG said on Thursday that SigmaKalon’s private equity owner, Bain Capital, would respond to the offer after discussions with appropriate employee representative bodies.
“This acquisition would give us a more balanced coatings business in Europe, approximately doubling our European sales,” PPG Chief Executive Charles Bunch said in a statement.
Bain had put the company up for auction, and sources familiar with the matter earlier this week tipped PPG as a bidder along with Sherwin-Williams Co. (SHW.N) and four private equity firms. Sherwin-Williams also confirmed on Thursday it took part in the auction.
Bain declined to comment. It bought the company in March 2003 for 1 billion euros, according to media reports at the time.
SigmaKalon had sales of about 2 billion euros last year, up from about 1.7 billion in 2003. It has about 10,000 employees and makes most of its money supplying its own branded paint ranges to the trade and retail sectors and supplies private-label paints to DIY chains.
BB&T Capital analyst Frank Mitsch said the deal appeared to be at an enterprise value/EBITDA (earnings before interest, tax, depreciation and amortization) multiple of between seven and nine, a sharp discount to the 11 multiple offered by Akzo Nobel (AKZO.AS) for ICI ICI.L.
He upgraded PPG to a “buy” rating from a “hold” on the back of the deal and recent performance and set a $90 price target.
Earlier Thursday, Pittsburgh-based PPG also reported that second-quarter earnings fell, hurt by difficult conditions in several North American end-use markets.
Many companies in United States that provide products and services to the construction sector have been hurt by a slump in the domestic housing market.
PPG, which sells paints under the brand names Pittsburgh Paints and Monarch, posted a quarterly profit of $249 million, or $1.50 a share, compared with a year-earlier profit of $280 million, or $1.68 a share.
Shares of PPG were up 35 cents to $80.77 at 1742 GMT on the New York Stock Exchange after having fallen as low as $77.63 in earlier trading.
PPG was advised by Lazard on the transaction while UBS and HSBC advised Bain.
Additional reporting by Jeffrey Goldfarb in London