PPG Sells Flat Glass Business to Vitro for $750 millionJuly 21st, 2016 by Editor
PPG, a Fortune 500 mainstay that was founded as a glass company 133 years ago, is selling the assets of its flat glass business to Mexican-based manufacturer Vitro, the companies announced Thursday. PPG will receive $750 million in gross cash proceeds.
PPG has flat glass manufacturing facilities in Carlisle, Pa., Fresno, Calif., and Wichita Falls, Texas. It also has a glass fabrication facility in Salem, Ore., and four insulating glass plants in Canada.
“This transaction represents the end of an historic era for PPG as a manufacturer of flat glass, and it is another major step in our portfolio transformation to focus on paints, coatings and specialty materials,” says Michael H. McGarry, PPG president and chief executive officer. “Upon completion of this transaction, the flat glass operations will become part of a company that is focused on growing its core glass business.”
The deal is expected to close by the end of 2016, subject to customary closing conditions.
Under the terms of the agreement, PPG will divest its entire flat glass manufacturing and glass coatings operations, including the production sites in the U.S., distribution/fabrication facilities across Canada and a research-and-development center located in Harmar, Pa. PPG’s flat glass business includes approximately 1,200 employees.
PPG has expanded its coatings business in recent years through acquisitions, and today that segment makes up 93 percent of its net sales, according to the company’s 2015 financial overview. It’s now the largest coatings company in the world by revenue, according to annual rankings from Coatings World magazine. Meanwhile, the company sold its Mount Zion, Ill., flat glass manufacturing facility in mid-2014 and sold its 40-percent share in Pittsburgh Glass Works to LKQ Corp. earlier this year. PPG’s glass segment reported $1.09 billion in net sales in 2015.
Vitro, the largest glass manufacturer in Mexico, reported $882 million in sales last year.
“This investment will strengthen our glass business for construction and enable us to take part in the U.S. and Canadian markets, as well as the high-tech solar control coatings sector, where we don’t have a major presence,” Vitro CEO Adrian Sada Cueva said in the statement.
What’s the Impact?
One analyst says the deal could be a net positive for the glass industry in the long run.
“Any time there is an acquisition, large or small, a certain amount of uncertainty and risk is created,” said Mike Collins, an investment banker and partner with Building Industry Advisors who is also a columnist for DWM. “In the majority of cases, most of the concerns that stakeholders have are baseless and go away over a relatively short period of time. An asset that is critical for our industry is being passed from an owner that is focused on other segments to an owner that is focused on the glass segment. Vitro’s willingness to invest in additional manufacturing capacity in the future will doubtless be higher in an environment where they not only have the historical PPG business as a starting platform, but also do not have to make plans for how PPG will react, as a competitor, to their expansion. Everyone needs more glass delivered sooner than they can get it right now, so as long as Vitro runs the PPG operations in a business-as-usual manner, current PPG customers will benefit from this deal.”
Chuck Wetmore, the CEO of Kensington HPP Inc., a manufacturer of vinyl replacement windows in Vandergrift, Pa., agrees.
“PPG has always been a great supplier partner for us and I believe that the sale to Vitro will allow the glass division to have a greater focus on glass technologies than under PPG, whose focus has clearly been on paint and industrial coatings,” he said. “This should be good for all parties involved.”
Jim Piggott Jr. of the Pigott Agency in Mechanicsburg, Pa., which provides sales representation and marketing services to residential and commercial building product manufacturers, says the sale could increase competition among U.S.-based glass businesses.
“Although these plants are mostly in the U.S., the executives will be in Mexico, and the cost of those U.S. employees will be cut,” he wrote in a comment on DWM’s website.
PPG has a handful of alliances with fabricators and companies in various sectors of the industry. SageGlass, a manufacturer of electrochromic dynamic glass, is one of them.
“The PPG flat glass business has a long and successful heritage of leadership in the industry and we expect it to continue under Vitro’s ownership,” says Derek Malmquist, vice president of marketing at Sage. “The SageGlass-PPG partnership will continue as we grow the market for dynamic glass as a unique solution for the needs of building owners and designers.”
Other allied companies include decorative glass manufacturer Walker Glass and fabricator JE Berkowitz (JEB). Marc Deschamps, business development manager at Walker, says his company is reserving comment “until we understand the impact of the sale on our relationship,” and representatives of JEB haven’t returned request for comment as of press time.
PPG’s Long History in Glass
Prior to the 20th century, most glass used in construction in the U.S. had to be imported from Europe. PPG helped change all that.
The company was founded in 1883 when Capt. John B. Ford and John Pitcairn started the nation’s first commercially successful plate glass factory in Creighton, Pa. Known as the Pittsburgh Plate Glass Company, it grew rapidly. In 1899, the company entered the chemical business with the opening of an alkali plant in Barberton, Ohio, to supply raw materials for glassmaking. Soon after, PPG launched its coatings business with the acquisition of Wisconsin-based Patton Paint Co. By 1900, PPG had ten plants, which made 65 percent of all the plate glass in the U.S., according to the Historical Dictionary of the Gilded Age. It was also the second-largest producer of paint during that time.
PPG’s roots in the global glass industry run even deeper. According to Encyclopedia.com, a distribution dispute with Pitcairn led John Ford’s sons to sell their PPG interests and form the Edward Ford Plate Glass Company. During the Great Depression, Ford merged with Libbey-Owens Sheet Glass to form Libbey-Owens-Ford Glass Company, which became Pilkington North America Inc., a subsidiary of Pilkington plc of the United Kingdom.
Glass and paint helped the company grow through the 1920s as the automotive and construction industries expanded. In 1928, PPG revolutionized plate glassmaking by developing the Pittsburgh process, in which a continuous sheet of molten glass is pulled up a four-story forming-and-cooling line, speeding up production and improving quality. It was a big step forward before the introduction of the float process in the 1950s.
In 1934, PPG introduced Solex heat-absorbing glass, and in 1938 it rolled out Herculite tempered glass, which was much stronger and more shatter-resistant than ordinary plate glass.
In 1968, the Pittsburgh Plate Glass Company changed its name to PPG Industries to reflect its growing global presence and diversification. Today, PPG operates in more than 70 countries and employs more than 47,000 workers around the world, supplying paint, coatings, specialty materials and fiberglass to many industries. The company’s headquarters in Pittsburgh, PPG Place, is an internationally acclaimed landmark that was designed by influential American architect Philip Johnson. DWM’s sister publication, USGlass, profiled the tower on its 30th anniversary in 2014, and in 2015, the magazine named it one of the most iconic glass buildings of the last 50 years.
PPG’s Earnings Rise
PPG today reported second-quarter net sales of $4.1 billion, down less than 1 percent versus the prior year. Second quarter net income was $370 million, or $1.37 per diluted share.
“During the quarter, we continued to deliver strong financial results and to execute on our strategic initiatives,” said McGarry. “We achieved 11 percent adjusted-earnings-per-share growth, marking 14 consecutive quarters of double-digit percentage growth. This consistent performance over an extended period of time is attributable to several factors, including our successful commercialization of innovative new products, aggressive management of our businesses and cost structure, and earnings-accretive cash deployment,” McGarry said.
Also Thursday, the company said executive chairman Charles E. Bunch will retire in September. Under Bunch’s leadership, PPG acquired more than 30 businesses. McGarry will succeed him.
DWM Editor Trey Barrineau and USGlass assistant editor Nick St. Denis contributed to this report.
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Opinion: This should increase competition against American USA based glass business. Although these plants are mostly in the US, the executives will be in Mexico and cost of those US employees will be cut. Policies of limited PPG customers will be changed the increase sales.