Swedlow Stock Levels Off After FTC Action

Over-the-counter trading in Swedlow Inc.’s stock leveled off Wednesday, a day after the price dropped $5.25 a share in the wake of the Federal Trade Commission’s notice that it plans to oppose the acquisition of Swedlow by PPG Industries.

Swedlow closed at $24.50 per share, unchanged from Tuesday’s closing, after dipping to $23.50 in light over-the-counter trading during the day. Industry analysts said Wednesday they do not expect the company’s stock price to fall below the Aug. 19 closing price of $22.50--the last closing price before PPG announced its acquisition bid.

PPG, of Pittsburgh, has proposed purchasing Swedlow--a Garden Grove-based plastics manufacturer specializing in military aircraft canopies and scratch-resistant coatings for plastics--for $42 million, or $32.60 per share.

But the FTC claims that because PPG also is a major supplier of aircraft windows the proposed merger would “substantially reduce competition” in that industry.

Some industry analysts, however, believe PPG wants Swedlow not for its aircraft division but for its technology in plastics, which PPG has not been able to acquire on its own or by purchasing another plastics company.

“Though PPG is a leading manufacturer of glass and airplane windows, Swedlow knows more about scratch-proof plastic transparencies,” said Donald A. Pattison, a chemical analyst with the Cyrus J. Lawrence Inc. brokerage firm in New York.

The application for Swedlow’s technology goes beyond its primary product, aircraft transparencies, Pattison said. “I’ve got two pairs of plastic glasses. They cost me $180 each and both of them are scratched. It would be neat if I had a pair of glasses that didn’t get scratched so easily.”

Jack Gold, Swedlow’s senior vice president and attorney, said the company is starting to penetrate the market for abrasion-resistant coatings for plastic lenses.

But he said Swedlow could not spin off its aircraft transparencies business and sell the rest of the company to PPG to satisfy the FTC. “You can’t separate the business from the technology,” he said. The 70 employees working on plastics technology are closely intertwined with the remaining 630 employees, he said.

While Both Swedlow and PPG said they planned to fight any legal action by the FTC, several analysts said the federal agency has built a good case for opposing the deal on grounds that it would violate antitrust laws.

The FTC is expected to go to court before Jan. 9--when Swedlow stockholders are scheduled to vote on the sale. PPG has 49% of Swedlow’s stock pledged to it by proxy.

“The FTC is on pretty firm ground. It would be pretty hard to fight this one,” said securities analyst Harvey B. Storch of Fahnestock & Co. in New York.

A former economist with the U.S. Justice Department’s antitrust division, Storch said the companies are “clearly in violation” of a section of the antitrust law that empowers the government to set aside a merger if it “might” substantially lessen competition in an industry or line of commerce.

Another industry analyst, Anne Wuesthoff of F. Eberstadt & Co. in New York, estimated that the acquisition would increase PPG’s share of the worldwide aircraft-window market to nearly 75% from its 45% share now.

PPG boasted five years ago that it was the world’s largest manufacturer of what are called aircraft glass transparencies and that it had twice the market share of its nearest competitor, a third analyst said.

But Swedlow does not believe the two companies compete.

“PPG sells glass transparencies, and Swedlow makes plastic enclosures. Our parts are not interchangeable,” said Jack Gold, senior vice president and attorney for Swedlow. “The windshield on the (Boeing) 747 is made of glass. It’s not designed for plastic, and we can’t make one for it.”

Swedlow makes $40,000 to $60,000 canopies that cover the cockpits in such fighter jets as the F-14, F-15 and F-18.

The only overlap--or competition--between PPG and Swedlow is the different designs each came up with for covering the cockpit of the old F-111, Gold said, and PPG won all three contracts last year.

Though analyst Wuesthoff said she had doubts about the PPG-Swedlow deal when it was announced four months ago, other industry analysts shared Gold’s surprise that the FTC would try to block the merger because the agency and the Justice Department’s antitrust division had approved much larger mergers--such as several oil company mergers and the General Electric Co.-RCA Corp. deal--that have greater impacts on the economy.

“The Reagan Administration has, in effect, eliminated the antitrust laws by allowing these large mergers,” Storch said. “These mergers have a major impact, this one (PPG-Swedlow) has zero. Why the FTC has moved here, I don’t know. It doesn’t make any sense.”