Volume 10, Issue 1 - January/February 2008

AGR Reports
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PPG Auto Glass Sale on the Rocks

Representatives for Project Gamma Acquisition Corp. (PGAC) and 321796 Nova Scotia Company (NSC), which are affiliates of Platinum Equity established in order to make the acquisition of PPG’s Automotive Glass & Services unit, have filed a complaint against the latter company alleging that PPG “misrepresent[ed] and conceal[ed] the true facts regarding the financial condition and performance of the company they owned and operated to fraudulently induce [Platinum] to purchase the company at an artificially inflated purchase price” (see related article on page 42).

The case was filed in the Supreme Court of New York County of New York.

Among the many points made in the complaint, the Platinum affiliates allege that PPG had originally forecasted 2008 revenues of approximately $1.1 billion and 2008 EBITDA of approximately $140 million, but revised this shortly before the signing of the final agreement to predict a 2008 revenue of “over $168 million (a decline of more than 15 percent), and a reduction in 2008 EBITDA of over $54 million (a decline of approximately 40 percent).”

The complaint also alleges that PPG presented Belron/Safelite as its largest customer in the auto glass replacement market and that projected sales to Belron/Safelite contributed to the original 2008 revenue and EBITDA forecasts, but that prior to the signing of the agreement, Belron/Safelite notified PPG that it would reduce its purchase volumes in 2008 by as much as $27 million. It is noted in the complaint that Belron/Safelite had made $58.5 million in purchases from PPG in 2006 and that its second largest customer, Harmon/Glass Doctor, purchased $23.8 million in aftermarket products from PPG in 2006. The complaint notes that Harmon/Glass Doctor also has notified PPG that the company intends to reduce its purchase volume by $6.2 million in 2008 (Editor’s note: This is a change Glass Doctor management strongly disputes). The complaint also alleges that the largest percentage of revised 2008 revenue forecasts was from a loss of new contracts that were expected, which had been included in the original forecast. However, the Platinum affiliates say the loss of the new contracts were not disclosed until the agreement with PPG was signed, resulting in a reduction of forecasted revenues of approximately $84.2 million in 2008.

PGAC and NSC go on to allege that PPG concealed this information from them. “Defendants blocked Plaintiffs’ access to management during Plaintiffs’ due diligence efforts, claiming that they did not wish to disturb the company’s management team. Defendants also segregated the documents pertaining to the transaction in a separate date room and restricted Plaintiffs’ ability to copy or print the documents for further review,” the complaint says.

The Platinum affiliates also allege that PPG had deferred “important and necessary maintenance at the fabrication plants, and that unplanned expenditures of $6 million to $8 million would be needed to perform the necessary repairs and maintenance at those plants.”

Likewise, the plaintiffs claim that PPG originally had advised them it would cost $11 million to close the company’s plant in Oshawa, Ontario, but after the signing, advised it would cost $13.6 million to close the plant, as part of the business’s restructuring. The complaint says that since the agreement was signed, PGAC and NSC have now learned that PPG’s Hawkesbury, Ontario, and Evart, Mich., plants also will need to be closed, at an additional cost of $36.8 million.

As part of the original agreement, the Platinum companies agreed to assume Canadian pension liabilities for employees who were more than five years away from eligibility. They allege that PPG provided documents showing that the total amount of the pension for all active employees would be less than $7 million, but after the agreement was signed, advised that the pension costs would be in excess of $14 million.

The plaintiff seeks “actual, compensatory and consequential damages … together with punitive damages and prejudgment interest,” along with rescission of the agreement, restitution of all benefits conferred by [Platinum] upon [PPG].”

The Platinum affiliates are represented by the law firm Bingham McCutchen LLP. At press time, a response had been requested from PPG within 20 days of the summons, filed December 26. PPG spokesperson Jack Maurer declined to comment on the suit.

“That’s at this point a matter of litigation, so I’m not really at liberty to talk about what our next steps would be with Platinum outside of what’s in the news release, which is that we intend to ‘vigorously enforce its rights under its agreements with the Platinum group,’” he says.

Platinum principal Mark Barnhill says the company is still interested in the purchase of PPG’s auto glass business.

In late-January, PPG Industries filed a motion to dismiss the Platinum Equity affiliates’ lawsuit alleging fraud, negligent misrepresentation and rescission causes of action. PPG also filed a counterclaim, alleging that Platinum’s complaint “brazenly re-writes and falsifies the parties’ historical course of dealing, express agreements and Platinum Equity’s own professional capabilities.”

Dow’s Jentoft Clarifies Recent News, Says Adhesive Business Remains Unchanged
In the wake of the announcement that Dow Automotive is exiting the automotive sealants business in North America, Latin America and the Asia Pacific, Phil Jentoft, commercial manager for the aftermarket, recently took the opportunity to speak with AGRR magazine/glassBYTEs.com™ about the changes and to clarify that the aforementioned exit does not affect the company’s aftermarket or glass bonding (auto glass adhesives) businesses.

AGRR: There’s been a lot of confusion about Dow lately—what would you like our readers to know?
PJ: There was an announcement made by Dow at the beginning of this month that it was exiting the automotive sealers business and that has nothing to do with the automotive glass bonding market, neither aftermarket nor OEM. We have no intentions of exiting the aftermarket business or the glass-bonding business whatsoever. 

AGRR: Dow has been in the news a good deal of late announcing cutbacks—are any cutbacks planned that you’re aware of on the auto glass adhesive side?
PJ: On the aftermarket and OEM side, not that I’m aware of. We don’t have any plans to cut back. As a matter of fact, we’ve just built two new automotive glass-bonding adhesive plants, one in Europe and one in Midland, Mich. … We’ve made significant investments in our North American operations as well, specifically in our packaging systems. … We’re definitely in this long-term. We have no intentions of exiting the glass bonding business.

AGRR: It has also been rumored that Dow may merge or be bought by another company—can you comment on whether this is a possibility? Are these rumors still circulating?
PJ: I’m probably not the best person to comment on that. I think those types of things will always be flying around. Dow just announced a joint venture with a company in the Mideast recently. 

AGRR: Are there any changes resulting from the automotive sealant business exit that would affect auto glass customers?
PJ: Nothing. Our people are in place. Our operations in Dayton are remaining untouched. We don’t anticipate any changes organizationally. 

AGRR: What do you think next year will bring for Dow and the industry as a whole?
PJ: You know, my hope for 2008 is that we see some growth within the glass replacement market, [and] that we see some price stabilization for the glass shops. They’ve been under a lot of pressure for the last several years and we’ve been trying to do some things to help them out through marketing and education to hope them run their operations more efficiently. We just want to see a happy, healthy industry moving forward. 

Circuit Court Rules That FMVSS 205 Does Not Preempt State Law
The U.S. Court of Appeals for the Fifth Circuit ruled yesterday that Federal Motor Vehicle Safety Standard (FMVSS) 205 does not preempt a common-law claim made against General Motors Corp. (GM) “for failing to use advanced glazing in the side windows of the Tahoe.” The case originally was filed by Chad and Michelle O’Hara, whose daughter was partially ejected from a 2004 Chevrolet Tahoe during a rollover accident, resulting in serious injuries.

The O’Haras originally filed the case in the U.S. District Court for the Northern District of Texas, alleging “common law theories of strict liability and negligence for the defective design, manufacture and marketing of the Tahoe’s side windows.” They claimed that the tempered glass in the vehicle’s sidelites was dangerous and that they should have been equipped with “advanced glazing.”

The U.S. District Court granted summary judgment in favor of GM on the grounds that the suit is preempted by FMVSS 205, which allows either tempered glass or advanced glazing to be utilized in motor vehicles.

However, circuit judge Edith Brown Clement ruled that the marketing and failure-to-warn claims made by the O’Haras (in addition to the safety claim) are not preempted by FMVSS 205 and that common law in the state of Texas makes GM’s actions negligent. Likewise, while the vehicle met the requirements of FMVSS 205, the court ruled that FMVSS 205 does not preempt state laws requiring vehicle designs not to be defective. The court cites Sprietsma v. Mercury Marine (2002) as a precedent. In that case, the Coast Guard’s decision not to require propeller guards (based on FMVSS 208) was determined to be preempted by state law (at the decision of the Supreme Court), noting that the decision “did not preempt a common-law suit claiming negligence for failing to install such a safety device.” 

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