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Why PPG Industries Is Hopping 7.5% Higher

By Rich Smith - Mar 8, 2017 at 4:28PM

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There's merger news afoot.

What happened

Shares of glass- and paints-maker PPG Industries ( PPG -0.45% ) are up 7.5% as of 3 p.m. EST Wednesday.

So what

Bloomberg is reporting that PPG Industries is pondering an acquisition of Dutch paint-maker Akzo Nobel NV -- although neither of the putative parties are acknowledging anything of the sort at this time. Investors are crossing their fingers and hoping it's true, as it would combine one of America's biggest specialty chemicals companies with the largest coatings supplier in Europe. It would also complete a process started five years ago, when PPG bought Akzo Nobel's North American decorative paint business in a deal valued at $1.05 billion.

The deal currently being reported would be much larger, with PPG (and its $27.8 billion market capitalization) stretching to the limits of its financial ability to try to swallow Akzo Nobel -- valued at $17.1 billion, and likely to sell for an even higher price once any merger premium gets factored in.

Rows of different colored paint cans.

All of a sudden, watching paint dry gets exciting. Image source: Getty Images.

Now what

So should PPG even try?

Consider that PPG stock currently sells for 33 times earnings. In contrast, Akzo Nobel stock currently costs less than 17 times earnings. That disconnect in valuation alone suggests that PPG would be getting a real steal of a deal if it succeeds in buying Akzo Nobel for anything near what the stock currently costs.

If a merger ultimately comes out of all this, PPG shareholders should be very pleased.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

PPG Industries, Inc. Stock Quote
PPG Industries, Inc.
$153.48 (-0.45%) $0.69

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