Buyer Sees PPG Glass Darkly
A private-equity firm says PPG portrayed its automotive glass division in too good of a light, and now it’s going to court to get out of a $500 million deal to purchase the unit.
Beverly Hills-based Platinum filed a lawsuit on Wednesday asking that a New York State court cancel the purchase agreement, claiming that PPG (nyse: PPG – news – people ) misrepresented the state of the business.
According to Platinum Equity, PPG failed to reveal forecasts showing that the unit would experience slower sales and higher costs than PPG’s executives led Platinum Equity to believe during negotiations.
Platinum said in its suit that PPG claimed in September, when the deal became public, that the business would earn $140 million in 2008 on sales of $1.1 billion. The private-equity group is now claiming that PPG hid revised forecasts showing earnings down 40.0% and sales down more than 15.0% from the original estimates.
If 2008 sales do come in as low as Platinum Equity is now predicting, the firm claims it would be required to shut close two factories at a cost of $30.0 million to $50.0 million.
Platinum Equity is accusing PPG of failing to disclose vital information about the automotive glass business, such as the intention of two of the company’s largest customers to decrease their purchases in the upcoming year.
PPG Industries, formerly known as Pittsburgh Plate Glass, has said that it will “vigorously enforce its rights” under the original agreements made with Platinum Equity. In the event that the deal does not close, PPG will continue to explore other options for its automotive glass business with the goal of “maximizing shareholder value.”
PPG slipped $1.26 or 1.7%, to $70.60 in Thursday trading.
“While this news creates uncertainty around the eventual final sale timing and price, we believe PPG’s strategy remains focused on transition to a specialty chemical company,” said Lehman Brothers analyst Sergey Vasnetsov. With the Platinum Equity deal fizzling, Vasnetsov expects PPG to sell its automotive glass business to another party in 2008 .
According to Goldman Sachs analyst Robert Koort, this is “clearly a negative” for PPG as shedding the glass unit was a “major component in its transformation into a higher-growth, higher-margin enterprise.” Yet, what Koort views as far more important is the deferral of a possible upward rerating and sentimental shift for PPG Industries’ stock. Koort lowered his price target to $80.00 from $91.00 to reflect uncertainty about the glass divestiture.
Reuters contributed to this article — via Forbes