Glass Industry

CSR Buys Pilkington

Australia's third-largest building-products maker CSR has paid $690 million for glassmaker Pilkington Australasia.

The deal for the Melbourne business, which has 1700 employees, saw CSR beat offers from consortiums reportedly led by private equity.

CSR said it intended to spend another $110 million refurbishing the target company's manufacturing plant at Dandenong.

CSR also gained Pilkington's Geelong-based factory, which makes glass for car manufacturers and the smash-repair market.

Yesterday's announcement, however, did not affect CSR shares, which edged up 1c to $3.48.

Earlier reports had touted CSR as the front-runner to buy the business from Nippon Sheet Glass, with prices flagged at between $600 million and $700 million.

Macquarie analysts said: "This is an acquisition that CSR really needed to make in terms of kick-starting earnings growth. The Pilkington business will be a sound strategic fit with CSR's insulation business, which has expanded production facilities recently."

But the analysts were "a little surprised that the acquisition will be earnings per share neutral in fiscal 2008 given it is 100 per cent debt-funded".

Shaw Stockbroking analyst Scott Marshall said the deal "adds diversity to their product range and increases their growth profile with scope to cut costs".

CSR highlighted possible consolidation in the sector.

"The value-added glass distribution market in Australia is fragmented and CSR believes there are further growth opportunities," CSR said.

It will incur one-off costs of about $15 million next fiscal year. But CSR was expecting cost savings of at least $20 million a year by fiscal 2010.

The business cost 7.9 times earnings before interest, tax, depreciation and amortisation next financial year. This was before one-off costs, but after cost efficiencies.

While debt-funded, CSR planned to raise $180 million in the next two financial years via a dividend re-investment plan.

Ratings agency Standard & Poor's, which placed CSR on credit watch with negative implications, said the "initial debt funding of these glass operations will weaken the company's financial profile".

"In addition, CSR's undertaking to refurbish its Dandenong plant in the near term will require additional capital," it said. "However, this refurbishment will significantly enhance earnings in the medium-term."

Pilkington is Australasia's only manufacturer of architectural glass, and CSR chief executive Jerry Maycock said the addition of the glass business would complement its existing portfolio of energy-efficient building products, such as Bradford insulation.

Source: HeraldSun