NSG to proceed with recommended cash acquisition of Pilkington plc

Pilkington is a c.20% owned affiliated company and global business partner of NSG. The formal announcement of the Transaction will be made today in London in compliance with local rules and regulations.

Following the completion of this Transaction, the combination of NSG and Pilkington will be a global leader in the flat glass industry with the largest market share in the world (NSG estimates) and approximately 760 billion yen*1 of sales. NSG will be further strengthened with increased competitiveness in costs, quality and service and able to take full advantage of enhanced economies of scale and combined technologies. Given these expected achievements, NSG believes that this Transaction will significantly enhance shareholder value.

The Transaction is a friendly acquisition and is being recommended by Pilkington’s board. Pilkington’s CEO and other key management members have agreed to continue their commitment to Pilkington and NSG group management post-Transaction.

The acquisition price is 165 pence (approximately 340 yen) per share, and the estimated funds required for the acquisition of the c.80% of shares not already owned by NSG will be approximately £1.8 billion (approximately 358.5 billion yen).

The required funds will be secured through bank loan financings in UK and Japan and issuance of Convertible-Bond-Type-Bonds With Stock Acquisition Rights (“SPS”)*2 as well as existing internal financial resources. The financing package has been structured based on thorough consideration of the short and long-term financial stability, healthiness and flexibility of both companies.
The Transaction will be effected by a court-approved scheme of arrangement in the United Kingdom and a formal document is expected to be posted to Pilkington shareholders by the end of March 2006. Closing is expected to occur promptly after the court approval which is expected to be late June 2006*3. The Transaction is conditional upon anti-trust clearances in relevant countries.

1.  Transaction rationale

(i)  NSG and Pilkington’s relationship and history to date

Headquartered in the United Kingdom, Pilkington is a world leading glassmaker with global operations in 24 countries spanning Europe, North America, South America and China. In order to enhance its service quality in line with the demands of its global customers, NSG has been reinforcing its strategic alliance with Pilkington. It acquired a 10% stake in Pilkington in 2000 and increased this to c. 20% in 2001 when Pilkington became an affiliated company under the equity method accounting.

(ii)  Objectives of the Transaction

In 2000, NSG formulated its “New Vision” targeting 2010 and has implemented various measures under a long-term strategy aiming to become an “Advanced and Truly Global Concern”.

By transforming Pilkington into a wholly owned group company from the current 20% affiliate, NSG will accelerate its vision to become a “Truly Global Concern” and, by further maximising the synergies in such areas as high level development capabilities and technologies which NSG and Pilkington have respectively built up to date, NSG will aim to become a truly “Advanced Enterprise.”

NSG believes that it can generate synergies from the combination with Pilkington in such areas as technology/development/engineering, sales/marketing, manufacturing, materials procurement, distribution and corporate overhead, and that in addition to economies of scale, both companies will be able further to enhance their strengths and mitigate their weaknesses.

In particular, globally operating automotive OEMs are expected to increasingly demand greater supplies of value-added, high-quality glass products simultaneously around the world, as typified in the move to “global cars”. The two companies’ development and manufacturing centres will be used with maximum efficiency to further strengthen responsiveness to these demands and improve customer service quality globally.

In the building products area, anticipating continuous and long term growth in demand especially in the BRIC countries and increasing demand for value-added glass in developed countries such as Japan, the more efficient use of the global manufacturing facilities of the combined two companies will enable more flexible and efficient product supply while the use of both companies’ advanced product development capabilities will allow exploration of potential new products in each region.

(iii)  Post-Transaction NSG group and its industry positioning

• After the Transaction, the NSG group will have one of the largest global shares (NSG estimates)*4 in the flat glass market with sales of approximately 760 billion yen.
• The NSG group will have manufacturing facilities for flat glass in over 27 countries around the world as of today.
• The geographical composition of the enlarged NSG group’s total sales will be 41% in Europe, 31% in Japan, 14% in North America, 4% in Asia excluding Japan and 10% in other areas*5.

2.  The acquisition price

(i)  The acquisition price

NSG and Pilkington have agreed on an acquisition price of 165p (340 yen) per Pilkington share*6. NSG has conducted a comprehensive review of Pilkington’s assets, business capabilities and other factors through due diligence and, after seeking advice from its financial advisors, Lazard, UBS Investment Bank and Daiwa SMBC, it has reached the conclusion that the acquisition price is fair and reasonable.

(ii)  Funds required for the Transaction

Total funds required for the Transaction are estimated to be £ 3.0 billion (approximately 616 billion yen) including refinancing of Pilkington’s existing debts, and other transaction costs.

(iii) Financing package for the Transaction

The following financing package has been arranged after thorough consideration of the short and long-term financial stability, healthiness and flexibility of the two companies post Transaction.

3.  Acquisition method

The proposed acquisition is planned to be implemented by means of a scheme of arrangement.

A scheme of arrangement, in brief, is a process under English laws and will be effected by a vote of the target’s shareholders and fulfilment of other conditions. The shareholders’ resolution thresholds are, excluding the shares owned by the acquiror (in this Transaction, NSG), a majority in number representing 75% or more in value of the shareholders exercising their voting rights. Through such procedures, the acquiror acquires 100% shares of the target from the existing target shareholders in exchange for the agreed consideration (in this Transaction, 165 pence cash per share*6).

Schemes of arrangement have become increasingly popular in the United Kingdom during the last few years and are regularly used in public company takeovers cases where the target’s board recommends the transaction.

4.  Expected timetable

We expect the following schedule until closing, subject to possible adjustments due to anti-trust clearance and other reasons:

5.  Post-Transaction group management structure and synergies between the two companies

Post-Transaction, Pilkington will be maintained as a NSG consolidated subsidiary and at the appropriate time, there will be a transition to a group management structure to maximise the benefit of synergies between the two companies.
In terms of the expected synergies, approximately 4.4 billion yen per year of short term pre-tax synergies are expected within three years of closing. This will include integration of engineering and development functions to eliminate surplus resources, combined purchasing power, improvement of facility utilisation through optimised production allocation, cooperative float glass productions between the two companies, integration of marketing offices, improvement of performance at plants through exchange of existing technologies.

In the longer term, the following is expected: innovation and improvement of manufacturing processes, development of new and value added products and improvement of quality levels and cost competitiveness.

The details will be announced after the completion of the acquisition.

6.  Impact on the financial results

There is no impact on the results for the current fiscal year ending 2006, either on a consolidated or stand-alone basis. Impact on financials from next fiscal year will be announced at the time of financial results announcement for the fiscal year ending March 2006.

7.  Pilkington and NSG financials

About Pilkington plc

Historical Financials  *8

 

About NSG

 

Historical Financial

*1 Simple sum of the revenues of the two companies for the fiscal year ended March 2005 without adjustment with respect to the discrepancies in accounting principles in United Kingdom and Japan. Exchange rate of ¥205/£1 is used throughout this document for convenience

*2 For details of SPS, please refer to the announcement separately released today, ”Announcement regarding issue of No.1 Unsecured Convertible-Type-Bonds With Stock Acquisition Rights”

*3 The expected date may be changed depending upon how soon conditions to the acquisition are satisfied

*4 Pilkington’s share is approximately 11% in sheet glass (building materials, automotive, and others) and NSG’s share is approximately 4%. Combined share of the two companies would be approximately 14% and result in the top share (NSG estimate based on publicly available disclosure for FY2004)

*5 Simple sum of the sale of the two companies for the fiscal year ended March 2005 without adjustment with respect to the discrepancies in accounting principles in the United Kingdom and Japan

*6 Alternatively, the existing Pilkington shareholder can elect to receive an interest bearing loan note, redeemable at par at the option of the note-holder on fixed dates until 2011

*7 The cash generated at Pilkington is planned to be used to pay down the debt for the next few years

*8 2004 Based on UK accounting principles (UK GAAP); 2005 based on International Financial Reporting Standards (IFRS) and no adjustment with respect to the discrepancies in accounting principles in United Kingdom and Japan