Dec. 14 (Bloomberg) -- PPG Industries Inc. agreed to buy the North American decorative paint business of Akzo Nobel NV for $1.05 billion, on optimism the company’s Glidden brand is poised to benefit from a recovery in construction markets.
The transaction will bring $1.5 billion in additional revenue to PPG, with 600 Akzo Nobel-owned paint stores, the Pittsburgh, Pennyslvania-based company said in a statement today. The Dutch company surged 7.1 percent to 48.70 euros in Amsterdam, the most since September 2011. PPG rose 3.8 percent to a record $129.93 in New York.
Chief Executive Officer Charles Bunch is accelerating the transformation of PPG after agreeing to sell a commodity-chemicals business making plastic pipe and siding for about $1.9 billion earlier this year. For Amsterdam-based Akzo, it marks the culmination of years of overhauling its unprofitable North American business and the Glidden paint brand to the point where it will be “slightly” positive this year, CEO Ton Buechner said on a conference call today.
“The running sore of the U.S. deco business will disappear from the portfolio,” Paul Satchell, an analyst at Canaccord Genuity, said in a note. “This would be considered a poor multiple for a branded deco paints business under most circumstances, but the U.S. element has performed remarkably badly for several years.”
“The North American activities need a critical mass, and we’d need significant funds to get there and we’ve decided to employ them elsewhere,” Buechner told reporters.
PPG has earmarked an improvement in earnings of about $160 million over a three-year period, including a $60 million boost immediately upon completion of the deal, it said.
The disposal announcement comes a week after Buechner returned from almost three months of leave because of fatigue. Talks with PPG started in the third quarter following an earlier review into what the options were for the business started under former CEO Hans Wijers, Buechner said.
Buechner will provide a more detailed strategy update explaining how the company plans to use the money raised from the divestment early next year. The company expects cash proceeds of $875 million.
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