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IRS Approves PPG's Business Split

Zacks Equity Research

PPG Industries Inc. (PPG) announced that it has received a favorable private letter ruling from the U.S. Internal Revenue Service (IRS) related to the previously announced divestment of its commodity chemicals business. In July 2012, PPG announced its intention to separate its commodity chemicals business and merge the same with Georgia Gulf Corporation or a Georgia Gulf subsidiary in a Reverse Morris Trust transaction. This business combination is expected to deliver enhanced value for the shareholders of both the companies.

The deal value of roughly $2.1 billion includes $95 million of debt. Per the deal, the merged company’s shareholders will receive 50.5% of the shares of the merged entity while Georgia Gulf shareholders will own the balance.

The receipt of the private letter ruling is a closing condition of the transaction with Georgia Gulf and an important objective for the completion of the transaction. As a result of this, PPG will commence its exchange offer and the merger is expected to close in late January 2013.

In October 2012, PPG released its third quarter 2012 earnings. The company posted earnings of $2.24 a share for the quarter (excluding one-time charges), beating the Zacks Consensus Estimate by 3 cents. The adjusted earnings excluded charges of $9 million associated with the company’s move to divest its commodity chemicals business. Profit (as reported) rose 9% year over year to $339 million or $2.18 a share in the third quarter of 2012, aided by the company’s cost containment measures.

Revenue edged down 0.1% year over year to $3,845 million, missing the Zacks Consensus Estimate of $3,904 million. Sales were adversely impacted by unfavorable currency translation. PPG saw mixed results across its end markets while its North American automotive original equipment manufacturer (:OEM) coatings business recorded strong growth in the quarter.

PPG Industries, which competes with the DuPont Performance Coatings segment of E.I. DuPont de Nemours & Co. (DD), currently retains a short-term Zacks #3 Rank (Hold). We currently have a long-term Neutral recommendation on the stock.

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