US auto decline likely killed PPG deal - analyst

27 December 2007 20:42  [Source: ICIS news]

HOUSTON (ICIS news)--US investment group Platinum Equity is likely abandoning a $500m (€345m) auto-glass deal with PPG Industries because of weakness in the US automobile industry, an analyst said on Thursday.

Platinum has sued PPG in the state court in New York, saying it is not obligated to close on the deal. Moreover, the company should not pay a $25m (€17m) termination fee to PPG.

In the suit, Platinum accuses PPG of fraud, negligent misrepresentation and breach of contract.

Citigroup Investment Research analyst PJ Juvekar said the decline in the US auto industry likely played a part in killing the deal.

US auto maker Chrysler is a major glass customer of PPG, and the company plans to idle factories and trim the number of models that it makes, Juvekar wrote in a research note.

Outside of statements issued on Thursday, neither PPG nor Platinum was making any comments about the suit.

Platinum spokesman Mark Barnhill said that the company was willing and able to acquire PPG's auto-glass division "as long as the terms fairly reflect the state of the business".

In the suit, Platinum alleges that PPG misrepresented and concealed the financial condition and performance of its glass business - all in an attempt to induce the investment group to pay too much for the division.

During discussions with Platinum, PPG had projected about $1.1bn in 2008 revenues and $140m in 2008 earnings before interest, taxes, depreciation and amortisation (EBITDA), according to Platinum.

In fact, prior to signing the agreement, PPG had reduced the revenue forecast of its glass business  by at least $168m, and its EBITDA forecast down by at least $54m, the suit alleges. PPG did not reveal the revisions to Platinum before the agreement was signed, according to the lawsuit.

In addition, the glass business' two largest customers, Belron/Safelite and Harmon/Glass Doctor, had told PPG that it intended to reduce its purchase volumes in 2008, which would reduce sales by $33.2m, according to the lawsuit. This was not disclosed to Platinum, according to the lawsuit, even though PPG knew about the reduction before the agreement was signed.

PPG also misled Platinum in regards to the loss of several business opportunities, representing $84.2m in lost revenues for 2008, Platinum said in the lawsuit.

PPG understated the amount of pension liabilities and obligations connected to the glass business, according to Platinum.

Moreover, reduced revenues and cash flows would require Platinum to close two glass plants in addition to a plant that Platinum had already planned to close, leading to unplanned restructuring costs, the suit said.

PPG had put off maintenance at the division's fabrication plants, which would require Platinum to spend an unexpected $6m-8m, according to the lawsuit. There were also other significant deferred maintenance required at the Meadville plant.

Had Platinum known about these hidden costs, it would have avoided the deal, the investment group said in the lawsuit.

($1.00 = €0.69)

By: Al Greenwood
+1 713 525 2653

< previous article(VIDEO - ICIS news Asia Lunchtime Bulletin 29 October 2009)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly