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PPG to sell Transitions Optical interests for $1.73B

| Monday, July 29, 2013, 10:30 a.m.

PPG Industries Inc. continued on Monday to build cash for acquisitions with the sale of its stake in Transitions Optical, the inventor of plastic eyewear that darkens in bright sunlight, for $1.73 billion.

Transitions will be sold to PPG's partner, Essilor International of France, the world's biggest maker of eyeglass lens.

Essilor will acquire PPG's Sunlens business, which makes traditional lens for sunglasses, and for PPG to supply optical dyes and research and development services for Transitions' popular light-sensitive eyewear from its research center in Monroeville.

PPG will receive $125 million over five years for those assets, according to Essilor. PPG owns a 51 percent interest in Transitions, and Essilor holds the remaining 49 percent. The transaction is expected to be done by the first half of 2014, pending regulator approval.

The Pittsburgh paint, glass and specialty materials company will use sale proceeds for acquisitions and to repurchase $500 million to $750 million in stock, CEO Charles E. Bunch said. The shares closed at $161.17, up $4.06 or 2.6 percent.

Bunch said during PPG's earnings report on July 17 that he continues to pursue acquisition candidates. At the end of 2012, the company added $2.2 billion in cash with the sale of its commodity chemicals business.

Frank J. Mitsch, an analyst with Wells Fargo Securities in New York, said “PPG's merger and acquisition focus remains on coatings, oriented towards Asia.” Following the Transitions sale, PPG's portfolio of businesses will approach 90 percent coatings, bringing it closer to rival paint company Sherwin-Williams Co. of Cleveland, he said.

Under CEO Bunch, PPG has continued the shift to coatings that took hold in the 1990s. In 1998, PPG's three primary segments were coatings, with $3.5 billion of sales, or 46 percent; glass, with $2.5 billion, or 33 percent; and chemicals, with $1.5 billion, or 21 percent.

The sale of the commodity chemicals business eliminated that segment. As paint has grown to 85.5 percent of sales as of June 30, glass, the product that gave the company its Pittsburgh Plate Glass name from 1883 to 1968, accounted for just 6.6 percent. Optical and special products accounted for 7.9 percent of sales.

“Transitions has been an excellent growth catalyst for PPG for more than 20 years,” Bunch said. “However, the optical industry is changing rapidly, including the emergence of new technologies.” Transitions introduced its seventh generation of lens in Europe earlier this year.

Transitions will benefit as one of Essilor's core businesses, Bunch said, and PPG will remain the leading supplier of optical resins and other materials to the industry. New acquisitions and stock buybacks will offset sales and earnings lost by selling Transitions, he said. Analyst Mitsch estimated the sale will reduce PPG's earnings by about 55 cents a share.

In a conference call, Essilor CEO Hubert Sagnieres said Transitions' sales have slowed, and he expects them to return to growth rates as Essilor invests in the brand, according to Bloomberg News. Transitions had revenue of $814 million in 2012, Essilor said, and the light-sensitive segment is growing twice as fast as the industry as a whole, notably in Asia, Latin America and Europe.

Analyst Laurence Alexander of Jefferies LLC in New York viewed the sale as “favorable” and reiterated a buy rating on PPG.

Transitions, based in Pinellas Park, Fla., was founded 23 years ago. PPG's Sunlens businesses are Intercast, in Parma, Italy, and Solarlens in Thailand, spokesman Bryan Iams said. Solarlens makes lens marketed and sold by Intercast, Iams said. Intercast had revenue of $34 million in 2012, Essilor said. PPG acquired both in 2006.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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