PPG Considers Trian's Call to Separate Into Two Paintmakers

(Bloomberg) -- PPG Industries Inc. said it will consider whether to split itself into two paintmakers as suggested by investor Trian Fund Management, which also has pressed to oust the chief executive officer.

A strategic review examining whether to separate the architectural-paints unit from industrial coatings will be finished by the end of June, the Pittsburgh-based company said in a statement Thursday. The shares climbed even as the company forecast first-quarter earnings that fell short of analysts’ estimates.

PPG’s examination comes as the company grapples with rising global economic uncertainty and falling demand for automotive coatings, particularly in Europe and China. That follows a blow to U.S. sales after Lowe’s Cos. last year selected Sherwin-Williams Co. as the exclusive paint supplier to the country’s second-biggest home-improvement chain.

Trian, which was co-founded by Nelson Peltz, in October disclosed a 2.9 percent stake in PPG and suggested that splitting up the paintmaker might improve performance. The New York-based investment firm also said CEO Michael McGarry should be replaced with predecessor Charles Bunch. PPG’s board has supported McGarry, who assumed the role in September 2016, and has stood by the company’s growth strategy.

‘Complete Look’

PPG’s review includes evaluating all its business and regions, McGarry said on a conference call to discuss fourth-quarter results.

“There’s always certain countries we look at, and we always say, ‘Is this a good use of shareholder money?’” he said. “But the intent is to take a complete look at everything that we have within PPG and make sure that we’re aligned to the most shareholder value creation.”

Loss of the Lowe’s business will reduce first-half sales by about $110 million.

The shares climbed 4.7 percent to $107.36 at the close in New York, the biggest gain since Oct. 25. The stock declined 12 percent last year, while a Standard & Poor’s materials index dropped 16 percent.

PPG gets about 40 percent of sales from architectural paints applied to the interior and exterior of buildings. The remainder is from coatings used on autos, planes, ships, appliances, packaging and other industrial applications.

Executive Compensation

Beyond the strategic review, PPG on Thursday adopted some measures recommended by Trian, such as making executive bonuses contingent on reaching 10 percent growth in adjusted per-share earnings this year. The investment firm had been critical of PPG’s failure to achieve such gains under McGarry. PPG also said it would recommend that shareholders vote to eliminate staggered board elections.

The targets and objectives resulted from PPG’s planning process and “are responsive to a broad set of shareholder feedback,” McGarry said in the statement.

A representative for Trian declined to comment. The investment firm hasn’t announced an opposition slate of candidates, as it does occasionally in similar situations. PPG’s deadline for board nominations is two days away.

PPG forecast first-quarter profit of $1.18 to $1.23 a share, citing higher costs. The guidance fell well short of the $1.40 average of analyst estimates compiled by Bloomberg. Fourth-quarter earnings beat Wall Street’s expectations.

McGarry also disclosed a U.S. Department of Justice probe into improper accounting at the company. PPG disclosed the accounting issues last year, along with an investigation by the Securities and Exchange Commission. PPG has implemented remedial accounting measures and is cooperating with both investigations, he said.

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