Volume 10, Issue 1 - January/February 2008
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.”
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