Pilkington goodwill to cost Nippon Sheet Glass JPY 220 billion

Goodwill amortisation from its purchase of Britain“s Pilkington Plc will cost Nippon Sheet Glass Co. Ltd. JPY 220 billion (USD 1.9 billion), or JPY 11 billion a year over a 20-year payment period, th…

Goodwill amortisation from its purchase of Britain“s Pilkington Plc will cost Nippon Sheet Glass Co. Ltd. JPY 220 billion (USD 1.9 billion), or JPY 11 billion a year over a 20-year payment period, the Japanese company said on 8 March 2006. Nippon Sheet Glass (NSG) Chairman and Chief Executive Yozo Izuhara also said new bank borrowing to finance the deal is about JPY 140 billion, which it should be able to pay off in a few years. “Judging from Pilkington“s cash flow so far, it is generating about JPY 80 billion of cash flow and even with other expenses we should be able to pay off the debt in a few years”, Izuhara said in an interview. NSG said 27 February 2006 that it would buy the remaining 80% of Pilkington it did not own in a JPY 610 billion (USD 5.18 billion) all-cash deal worth, a figure including Pilkington“s existing debt, which is about JPY 210 billion. Izuhara said that by using cash on hand and issuing convertible bonds, new borrowing will be cut to JPY 140 billion, which Nippon Sheet Glass can pay off without affecting its credit rating. Under the deal, Nippon Sheet Glass will finance chiefly through borrowing of GBP 1.5 billion from British banks and through convertible bonds worth JPY 110 billion issued to Daiwa Securities SMBC and UBS AG, among others. Izuhara said a yearly synergy effect of JPY 4.4 billion generated by the buyout is likely to increase through lower procurement costs and supplying parts for new auto models. “It“s absolutely possible that we can benefit more from merging with Pilkington … the JPY 4.4 billion figure is a very conservative number,” he said. The Pilkington acquisition has been seen as risky, raising concerns especially about Nippon Sheet“s credit rating. Standard & Poor“s Ratings Services said earlier in March 2006 that its “BB+” long-term corporate credit and debt ratings on Nippon Sheet Glass remain on credit watch with negative implications. Izuhara said it would aim to double its operating profit margin to 10% by increasing profitability not only at its glass business but also at its information technology business. Together with Pilkington, Nippon Sheet Glass will generate 22% of operating profit in emerging markets such as Brazil, Russia, India and China, although Izuhara had a warning about the latter: “People say China has growth potential but it is a very tough market”. If the buyout is completed, Nippon Sheet Glass and Pilkington will hold about 14% of the world flat glass market, which Nippon Sheet Glass estimates at JPY 4.4 trillion, close to sector leaders Asahi Glass and Saint-Gobain . Izuhara said Nippon Sheet Glass and Pilkington are expected to draw up medium-term business plans by autumn 2006, looking to implement them from April 2007.