PPG Industries' split-off transaction of its commodity chemicals business is underway, having gained all required approvals, the company has announced.
The $2.1 billion deal is designed to create "a leading global chemicals and building products company with a broad portfolio of downstream products and approximately $5 billion in revenues," the Pittsburgh-based paint and coatings company has said.
The transaction involves the separation and merger of Eagle Spinco Inc. (also known as "Splitco"), a PPG subsidiary that will own PPG's commodity chemicals business with a subsidiary of chemical maker Georgia Gulf Corp.
On Dec. 21, PPG announced that the U.S. Internal Revenue Service had signed off on the deal. The agency's approval was a closing condition in the transaction. Georgia Gulf confirmed the move in a separate announcement.
PPG expects that the exchange offer will be closed and the merger will occur in late January 2013.
PPG will sell its commodity chemicals business and merge it with a subsidiary of Atlanta-based Georgia Gulf Corp.
Immediately after the merger, Eagle Spinco shareholders will own about 50.5 percent of Georgia Gulf, with existing Georgia Gulf shareholders owning about 49.5 percent.
Key terms of the agreement include:
PPG shareholders have the option to exchange all, some or none of their shares of PPG common stock for shares of Eagle Spinco common stock, subject to proration.
Tendering PPG shareholders are expected to receive approximately $1.11 of Georgia Gulf common stock for every $1.00 of PPG common stock tendered, subject to limits.
PPG will determine the prices at which all shares will be exchanged by reference to the simple arithmetic average of the daily volume-weighted average prices of PPG and Georgia Gulf common stock, respectively, on the New York Stock Exchange on each of the last three trading days of the exchange offer.
PPG currently expects to issue about 35,236,010 shares of Eagle Spinco common stock in the exchange offer. Based on recent trading prices, and assuming the issuance of that number of shares, if the exchange offer were fully subscribed, about 9,973,679 shares of PPG common stock would be accepted for exchange in the offer.
The exchange offer and withdrawal rights are scheduled to expire at 8 a.m. ET on Jan. 28.
Chemicals and Building Products
PPG announced the plan in July. 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.
The new company 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.
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.
As PPG reconfigures its commodity chemicals business, it has also announced plans to buy AkzoNobel's North American decorative paints business for $1.05 billion.
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.