PPG shares up on deal to buy home paints business

NEW YORK (AP) -- Shares of PPG Industries Inc. rose Friday after it reached a deal to buy Akzo Nobel NV's North American home paints business in a deal worth about $1.05 billion.

THE SPARK: The Pittsburgh-based coatings and specialty-products maker said the acquisition further expands its coatings business and increases its scale in the North American architectural paint market.

THE BIG PICTURE: Amsterdam-based Akzo, the biggest maker of paints and coatings by sales, is the main supplier of in-store paints for Wal-Mart and makes the Glidden brand, among others.

Although the business had sales of $1.5 billion in 2011, analysts believed it was not as profitable as Akzo's larger industrial paints and coatings businesses. Akzo said it would use proceeds to focus on stronger markets and growth markets.

The acquisition includes all AkzoNobel North American architectural coatings manufacturing and distribution facilities, paint stores and product lines related to the production, sale and distribution of architectural coatings in the U.S., Canada and the Caribbean.

The businesses in question posted 2011 revenue of about $1.5 billion, Akzo said.

The deal has been approved by the boards of both companies and is expected to close early in the second quarter of 2013, PPG said.

The company also said in announcing the deal that it plans to restart its stock buyback program after the sale of its commodity chemicals business closes early next year, adding that it expects a base level of spending of between $500 million and $750 million for the year.

THE ANALYSIS: Jefferies analyst Laurence Alexander backed his "Buy" rating for PPG stock, noting that the addition should boost the company's 2013 sales by about 11 percent, but also ties its fortunes even tighter to a U.S. housing recovery.

Alexander estimated that the acquisition and the effects of the restarted stock buyback program could boost the company's fiscal 2014 earnings by a combined 35 cents to 65 cents.

Citi analyst P.J. Juvekar, who also rated PPG stock at "Buy," said that while the deal looks good on paper, the company faces several challenges.

"Overall we like the deal but we need to see progress on synergies, given how unprofitable the Akzo business is, before declaring victory," Juvekar wrote in a note to investors. "Plus, increased exposure to improving U.S. construction markets is certainly positive."

THE SHARES: Up $4.73, or 4 percent, to $129.94 in heavy afternoon trading, after peaking at a new 52-week high of $132.88 earlier in the day.

PPG shares have been on a steady climb since the beginning of the year, gaining more than 50 percent.