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PPG Gets Go-Ahead to Split Business

Monday, December 24, 2012

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PPG is finalizing plans to split off its $5 billion commodity chemicals business after receiving a favorable ruling from the U.S. Internal Revenue Service, the company announced.

On Friday (Dec. 21), PPG announced that it received a favorable private letter ruling from the IRS on the deal. The agency's approval was a closing condition in PPG's pursuit to split off the unit into a new company called Splitco, and then immediately merge the business with chemical maker Georgia Gulf or a Georgia Gulf subsidiary.

Georgia Gulf confirmed the letter in a separate announcement Friday.

PPG expects that the exchange offer will be closed and the merger will occur in late January 2013. Terms of the offer will be released upon commencement of the offer.

Georgia Gulf

PPG plans to sell its commodity chemicals business and merge it with Georgia Gulf.

Immediately after  the merger, Splitco shareholders will own about 50.5 percent of Georgia Gulf, with existing Georgia Gulf shareholders owning about 49.5 percent.

Leading Global Chemicals

PPG announced the plan in July. The company said it would separate the unit and merge it with Georgia Gulf in a $2.1 billion deal designed to create "a leading global chemicals and building products company with a broad portfolio of downstream products and approximately $5 billion in revenues."

PPG's commodity chemicals business produces chlorine, caustic soda and related chemicals throughout the U.S., Canada and Taiwan for use in chemical manufacturing, pulp and paper production, water treatment, plastics production and agricultural products worldwide.

Splitco will be led by Georgia Gulf President and CEO Paul Carrico and a senior management team consisting of  Georgia Gulf and PPG commodity chemicals employees. The board of directors will be comprised of the eight existing Georgia Gulf board members and three new members designated by PPG, including Michael H. McGarry, the senior VP of PPG's commodity chemicals business.

The merged company will have about 6,400 employees at more than 40 facilities, primarily in North America, PPG said.

The new company will be led by Georgia Gulf's President and CEO, Paul Carrico (center). Michael H. McGarry (right),  senior VP of PPG's commodity chemicals business, will join the new board of directors. Charles E. Bunch (left) is PPG's chairman and CEO.

Doubled Architectural Coatings

Despite the commodity chemicals spinoff, the world's second-largest paint and coatings company is not getting any smaller. To the contrary.

On Dec. 14, Pittsburgh-based PPG announced that it would purchase AkzoNobel's North American decorative paints business for $1.05 billion.

Boards of directors for both companies approved the deal, which is expected to close early in the second quarter of 2013, subject to regulatory approvals, PPG stated.

The acquisition immediately more than doubled PPG's North American architectural coatings presence and expands its company-owned store network on the continent to about 1,000 stores.

The transaction includes brands Glidden, Flood, Liquid Nails, Sico and CIL. PPG will also license Dulux and Devoe architectural coatings and Sikkens architectural wood products.

In 2011, AkzoNobel's North American Decorative Paints business had revenues of $1.5 billion—about 7 percent of the company's total annual revenue.

Record Earnings Year

In October, PPG announced record quarterly earnings.  The company reported third-quarter 2012 net sales of $3.8 billion, the same as the year-ago period, and $339 million in net income, up from $311 million in the third quarter of 2011.

Adjusted net income for the quarter, excluding nonrecurring charges, was $348 million.

The third-quarter earnings followed a strong second quarter for PPG, when the company posted $4 billion in net sales for the quarter. 

Both the second and third quarters including nonrecurring charges related to the commodity chemicals deal with Georgia Gulf.

In the third quarter, those after-tax charges totaled $9 million, or 6 cents per diluted share; in the second quarter, PPG reported $3 million in after-tax charges that nipped two cents from its per-share price.

The company anticipates additional separation costs in the fourth quarter. PPG's fourth-quarter results are expected in January 2013.

PPG also announced in December that it would restart its stock buyback program once it completes the sale of the commodit chemicals business.

About the Companies

PPG was founded in 1883 and has its global headquarters in Pittsburgh, PA, and operates in more than 60 countries worldwide.

Georgia Gulf, headquartered in Atlanta, GA, is a North American manufacturer of two chemical lines, chlorovinyls and aromatics, and manufactures vinyl-based building and home improvement products.

The company's building and home improvement products include window and door profiles, mouldings, siding, pipe and pipe fittings, and deck products and are marketed under the Royal Building Products and Exterior Portfolio brands.



Tagged categories: Acquisitions; Chlorides; Internal Revenue Service; Mergers; PPG; Pulp and Paper Plants; Vinyl

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