At the end of last year, Owens Corning (NYSE:OC) and St. Gobain announced a joint venture for the production of composite materials. It was going to be 60 /40 owned by OC and either company had the option to buy out the other's interest in 4 years; OC indicated that they would most likely eventually exercise that option.
The plan ran into hurdles with EU regulators and both companies withdrew their application earlier this year. The objections of the regulators was never really made clear.
So, in order to satisfy them, OC is selling it's siding business to St. Gobain for $371 million and then turning around and buying St. Gobain's composite business for $640 million. Can anyone tell me what has been accomplished? How is this any different than before and why are regulators now satisfied?
It seems that EU regulators just needed something to do so they thought they would make the two companies alter an agreement to do the same thing another way. At the end of the day OC got rid of a siding business they have been trying to sell for almost a year now and with those funds they were able to finance the purchase of a composite business they had every intention of buying anyway.
The regulators must have wanted to accomplish something, I just for the life of me cannot figure out what. It need to be point out that neither business was a world leader in either siding or composite so it did not have a monopoly issues attached top it.
Maybe just a slow Monday at the EU regulators office?
Who knows, but the deal is good for OC. composite sales are exploding around the globe and this deal ads 40% to OC composite sales that are growing organically at double digit rates. "This is a transformational acquisition for Owens Corning," said Dave Brown, Owens Corning president and chief executive officer. "This acquisition expands Owens Corning's footprint around the world and strengthens our position in key markets such as Russia, China, India, Mexico and Brazil. It also brings talented people and proven technology to Owens Corning, and it balances our exposure to the cyclical downturns associated with the residential construction market in North America. Composite Solutions is a core business at Owens Corning and we are committed to its continued growth."
"Glass fiber markets are global, diverse and growing at two-times global GDP," said Mike Thaman, Owens Corning chairman and chief financial officer. He continued, "This strategic acquisition extends our global reach to commercial and industrial markets of interest and expands our global presence in a capital- efficient way that adds near- and long-term value to shareholders."
Chuck Dana, the president of Owens Corning Composite Solutions business, said, "This acquisition will accelerate the ability of Owens Corning to grow with our customers in both developed and high-growth emerging markets."
It is a great deal for OC - just a mystifying regulator intervention.
Disclosure: Author is long OC