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PPG to Offload Optical JV Stake for $1.73B

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Coatings giant PPG Industries (PPG) has agreed to sell its majority stake in Transitions Optical to ophthalmic lenses giant Essilor International, thus ending its 23-year investment in the joint venture.   

Transitions Optical, which was formed in 1990, is a leading supplier of photochromic lenses to optical makers globally. PPG Industries holds a 51% stake in the joint venture with Essilor owning the balance. PPG Industries had been in talks with Essilor for months regarding the future of their joint venture.

Essilor will also enter into multi-year deals with PPG Industries, under which, the latter will continue to supply optical dyes and research and development services. Essilor will also buy PPG Industries’ optical sunlens business. PPG Industries said that the optical industry is changing rapidly and the stake sale will place Transitions Optical as a core business within a leading global optical industry company.

Transitions Optical represented a meaningful portion of PPG Industries’ Optical and Specialty Materials division last year and has been a major growth driver for the company for more than two decades. The entity had sales of roughly $800 million in 2012, representing roughly 5% of the company’s total revenues for the year.

The total enterprise value of the transaction is around $3.4 billion with PPG Industries receiving $1.73 billion (pre-tax) or around $1.5 billion (post-tax) in cash, subject to certain adjustments. The transaction, which is subject to customary closing conditions including regulatory clearances, is expected to close in the first half of 2014.

PPG Industries plans to deploy the proceeds from its 51% stake sale on acquisitions and share repurchases. The company, which earlier suspended share repurchases due to ongoing negotiations, is resuming buybacks with a target of $500 million to $750 million repurchases for 2013. PPG Industries expects earnings benefit from the cash deployment to more than offset earnings dilution from its stake sale.   

Shares of PPG Industries rose 2.6% to close at $161.17 yesterday. Its shares are up roughly 20% so far this year.  

PPG Industries has a diversified business, both in terms of products offered and geographical presence. It has a leading position in several paints and coatings end markets.   

PPG Industries beat earnings expectations in the second quarter of 2013, reported on Jul 18, riding on its cost reduction initiatives and strong results from its coatings business, backed by sales gains across automotive OEM and aerospace markets.

Revenues from the Optical and Specialty Materials segment rose 4% to $326 million in the quarter on volumes gains across optical products and silicas. The division accounted for roughly 8% of total sales for the quarter.

While PPG Industries is expected to benefit from strength across North American automotive and aerospace markets, it remains exposed to continued softness in Europe and a challenging demand environment in the region.

PPG Industries currently carries a Zacks Rank #2 (Buy).

Other companies in the chemical industry with favorable Zacks Rank are Northern Technologies International Corp. (NTIC), Cytec Industries Inc. (CYT) and Methanex Corp. (MEOH). While Northern Technologies retains a Zacks Rank #1 (Strong Buy), both Cytec Industries and Methanex carry a Zacks Rank #2 (Buy).

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