Pittsburgh-based paint and chemical maker PPG Industries has signed an agreement with an affiliate of funds managed by private equity firm Kohlberg & Company, LLC, Mount Kisco, N Y, under which PPG will divest its automotive glass and services business to a new company formed by Kohlberg.

PPG will receive $330 million in gross cash proceeds plus a minority ownership interest of approximately 40 per cent in the new company, subject to closing adjustments. Net of payments to former minority interests, transaction fees, expenses and taxes, the transaction will result in approximately $270 million in cash to PPG.

''This transaction is another positive step forward in our portfolio transformation,'' said Charles E. Bunch, PPG chairman and chief executive officer. ''It enables us to focus more on coatings and specialty products, and significantly reduces PPG's exposure to the US automotive market.''

PPG had earlier attempted to sell the auto glass and services business in September to Platinum Equity (See: PPG Industries to divest auto glass businesses to Platinum Equity; To focus on coatings, specialty products) , but the $500-million leveraged buyout  transaction was terminated by the buyer who filed a lwsuit alleging that PPG had failed to provide complete and accurate information. PPG then filed a suit against Platinum seeking a $25 million termination fee. 

According to Platinum's suit, PPG initially provided a 2008 forecast of about $1.1 billion in revenue and about $140 million in Ebitda at the time of the signing, but even before the signing, PPG revised its forecast, cutting its 2008 revenue projections by more than 15 per cent and slashing Ebitda predictions by 40 per cent.

The suit is still pending with Platinum seeking to recover costs and avoid paying the $25 million breakup fee. PPG has countersued, also seeking damages including the breakup fee.

The auto glass business, recorded as a discontinued operation starting in September 2007, will be reclassified as a continuing operation in the company's earnings reports to account for PPG's ownership stake in the newly formed company.

PPG said the net cash proceeds from the transaction will be utilised for general corporate purposes.

In accordance with generally-accepted accounting principles, the results of the automotive glass and services business were reported as discontinued operations beginning in September 2007 and, because PPG will hold an ownership interest in the newly formed company, it will reclassify the business into continuing operations in the company's historical and current financial statements.

In the second quarter, the company will record a one-time, non-cash charge to reflect a catch-up of depreciation expense, which was suspended when the business was classified as a discontinued operation. In addition, the company will also record a one-time charge relating to the impact of benefit changes, including accelerated vesting, negotiated as part of the transaction. The total of these two second quarter charges is estimated to be approximately $25 million aftertax, with the final amount pending completed actuarial calculations.

The closing is subject to customary closing conditions, including receipt of any required regulatory approvals. PPG is expecting to record a slight book gain upon closing, which is anticipated in the third quarter. Also, PPG will retain certain liabilities for pension and post-employment benefits earned for service up to the date of divestiture, and there may be one-time charges in future periods related to these obligations. After completing the divestiture, PPG will account for its remaining interest in the new company under the equity method of accounting.

The automotive glass and services business supplies automotive OEM windshields, rear and side windows, sunroofs and assemblies for auto and truck manufacturers, and it supplies and distributes replacement automotive glass products for use in the aftermarket. It also provides insurance claim services through its Lynx Services subsidiary, glass management software through its GTS subsidiary, and e-business solutions through its GLAXIS division.