Summer's Over. Guess Who Still Owns PPG Auto Glass?

When PPG Industries announced earlier this year that it was putting its auto glass business, including LYNX Services, up for sale, the company said it expected to make an announcement by the end of the summer. Well, Labor Day has come and gone, and no such transition has been announced. So what's going on?

AGRR magazine/glassBYTEs.comô is providing an update, based on interviews with experts, and even some potential buyers, about the status of said sale.

AGRR has spoken with sources who have reviewed the sales prospectus. Each independently confirmed that PPG's auto glass business was profitable, but did not return margins at high enough levels to satisfy the company's internal goals. Further, not all divisions of its auto glass business were profitable.

The news that some of its best OE customers would begin sourcing and manufacturing glass in China would prove another challenge to PPG going forward.

So who will the purchaser be? We've handicapped some likely suspects:

Guardian Industries: Long assumed to be the most likely acquirer, Guardian was generally considered the frontrunner in such a purchase. There's no company more proficient or shrewder in making acquisitions than Guardian. But Guardian is also known for its price negotiations and for buying good properties-just not at top dollar. What would Guardian get with such a purchase? It already has the manufacturing capabilities. With a mantra to stay true to its core business, it would be reasonable to expect Guardian to spin off LYNX. Our sources tell us negotiations with the Big G were hot and heavy over the summer, but have cooled considerably since August.

Belron: A year ago, such a purchase would have made sense for Belron, but with its purchase of Safelite Glass Corporation, there is little a purchase of PPG Auto Glass could bring to the table that Belron doesn't have already. More than physical shops, Belron needed claims administration capabilities, insurance relationships and a conventional network. It got all those with the Safelite purchase.

Some insiders say that such a purchase would make sense for Belron, if only to neutralize the effectiveness of LYNX.

"You've got to remember," said one such person knowledgeable about the sale negotiations, " LYNX is the only entity that really keeps Belron from total U.S. domination. But most of LYNX customers have had a choice between Safelite and LYNX for sometime and, obviously chose LYNX. Reducing the pool of claims administrators might only aid in the development of new claims administration mechanisms by insurers. Plus, it would be an awfully expensive purchase made mainly to bring LYNX to the table."

Even so, Belron has been known for innovation and a purchase of PPG Auto Glass would not be a total surprise. It would, however, require quite a bit of capital at a time shortly after the company put new debt instruments in place to finance its Safelite purchase.

NAGS: Most experts agree that it would be very difficult for the information provider, which furnishes Benchmark pricing, to actually be in the industry for which it provides pricing. Any such purchase would face legal hurdles for a company that also provides pricing information.

Venture Capitalists: A number of companies without current ties to the AG industry have looked at PPG Auto Glass as a possible acquisition target. Sources familiar with the sale negotiations have cited both Metalmark Capital and Kohlberg & Co. LLC as possibly having interest in a purchase.

Metalmark Capital is an independent, private equity firm based in New York. It is involved in a range of industries, including other manufacturing industries, healthcare, financial services, energy and other natural resources, and was originally founded to manage the Morgan Stanley Capital Partners private equity funds on a sub-advisory basis and the Metalmark Capital private equity funds.

Kohlberg & Co. LLC is a U.S. private equity firm which acquires companies valued from $100 to $500 million. The company was founded in 1987 and since then has organized five private equity funds and has raised $2.2 billion in committed capital, according to the company's website. The company says its goal is "to realize substantial capital gains through control investments in a diversified portfolio of companies."

Kohlberg's website notes that it has completed more than 80 platform and add-on acquisitions with an aggregate value of more than $5 billion. The company says it prefers to invest in companies where it can work closely with senior management to sight growth opportunities and make operating changes to increase revenue and cash flow.

Kohlberg & Co. has locations in Mt. Kisco, N.Y., and Palo Alto, Calif. As with PPG, neither firm would comment.

Fuyao Group, and other Chinese glass manufacturers, have been mentioned as possible suitors. Such a move would make sense for a company like Fuyao. It would give it ready-made manufacturing facilities in the United States, a book of business that would increase the number of car manufacturers to whom Fuyao supplies OE glass and LYNX.

And what of LYNX? Many of those with whom we spoke felt that a majority of potential buyers would spin-off and resell LYNX and focus on manufacturing and perhaps retailing. They point to companies such as the National Glass Exchange (CLICK HERE for previous glassBYTEs.comô coverage of the NGE), a recent start-up, as the type of company that might be interested in such a sale.

The Chop Shop Strategy: Or nothing could happen at all. PPG has indicated that, if none of the bids were to its liking, it would continue operating PPG Auto Glass and likely sell off parts of the division bit by bit. This is one of the more likely scenarios.

Need more info and analysis about the issues?
CLICK HERE to subscribe to AGRR magazine.