British glass maker Pilkington Plc said it would buy out Nippon Sheet Glass Co. Ltd.“s (NSG) interests in four of its units.
Pilkington will issue NSG 122.2 million shares, representing 10% of its e…
British glass maker Pilkington Plc said it would buy out Nippon Sheet Glass Co. Ltd.“s (NSG) interests in four of its units. Pilkington will issue NSG 122.2 million shares, representing 10% of its enlarged share capital, while Japanese glassmaker NSG will pay Pilkington US$ 7.5 million in cash. Based on Pilkington“s closing share price of 77p on May 24, the group will pay about UK 94 million (US$ 138.9 million) to NSG to buy out the units. Pilkington will buy out NSG“s 20% stake in its US-based Libbey-Owens-Ford Co. unit, its 50% stake in L-N Safety Glass and L-N of America, and its 20% stake in UK-based Triplex. Analysts said the deal was a logical move for Pilkington, adding that it had paid a reasonable price for the acquisitions. “I think it seems a logical, reasonable move. Pilkington is keen to cut costs at its north American operations, which will almost certainly involve some plant closures. In order to do that effectively, they have to own 100% of the business rather than have to negotiate with a minority shareholder,” said one analyst. Pilkington announced its Step Change restructuring programme in March, designed to boost competitiveness in Europe and north America and cut overhead costs. The group said on March 30 that the cost of the programme for this year would be UK 110 million. Melrose, who rates Pilkington a “buy” on a 12-month price target of 125p, said the group“s cost-cutting programme in Europe had brought it back down in line with its French rival Saint-Gobain and Belgium“s Glaverbel. Pilkington has a return on equity (ROE), a measure of profits returned to shareholders, of 8.3%, higher than Glaverbel which has a ROE of 7.8% according to reports. Saint-Gobain“s ROE is 12.8%. Pilkington Chairman Paolo Scaroni said in a statement that NSG“s decision to receive Pilkington shares was a “vote of confidence in our company and its prospects”. “This transaction with NSG gives us full control over these important businesses and provides us with flexibility to optimise sales and production decisions within north America within Europe and worldwide,” Scaroni added. The group, based near Liverpool, north-west England, said the acquisitions would also help its shareholders “receive all the benefits flowing from our Step Change” programme. Pilkington added that the deal with NSG, which is conditional upon approval by its shareholders, was expected to be earnings neutral in the year to March 2001. Schroders Salomon Smith Barney is advising the firm on the acquisitions. Shares in Pilkington rose by 1p, or 1.3%, to close at 78p. The stock, which has a price to earnings (PE) ratio of 15.4, has underperformed the FTSE All Share Construction & Building Materials Index by 4.3% so far this year.