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PPG Swoops in on Comex

Tuesday, July 1, 2014

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PPG Industries has announced a $2.3 billion plan to buy Mexico paint and coatings giant Comex—the same company that Sherwin-Williams unsuccessfully pursued for more than a year.

Pittsburgh, PA-based PPG's acquisition of Consorcio Comex S.A. de C.V. will include all manufacturing and distribution facilities, brands and product lines related to the production, sale and distribution of architectural coatings in Mexico and Central America, the companies announced Monday (June 30).

Sherwin-Williams, headquartered in Cleveland, OH, spent 16 months trying to complete a $2.34 billion purchase of Comex, but called it quits in April after being twice rejected by Mexican antitrust regulators.

Comex has since sued Sherwin-Williams, claiming the company didn't try hard enough to close the deal.

PPG Confident

PPG officials exuded confidence that its proposal would enjoy smooth sailing.


PPG announced a $2.3 billion deal to acquire Comex. Sherwin-Williams tried for 16 months to buy the company but was rejected twice by Mexican regulators.

PPG anticipates it will take four to six months to complete regulatory approval and other necessary steps.

"We are confident ... that we can get this transaction approved by the regulatory authorities in Mexico," Charles E. Bunch, PPG's chairman and CEO, said in a conference call about the deal Monday.

"The acquisition is very complementary to PPG as it adds a leading architectural coatings business in Mexico and Central America, a region where we have negligible architectural coatings presence," Bunch said.

Glenn E. Bost II, PPG's Senior VP and General Counsel, said the company had reviewed the decisions and documents of Sherwin-Williams' attempted acquisition.

"We believe this acquisition is very different than the previously proposed transaction," Bost said on the conference call.

'Negligible' Mexican Presence

Comex manufactures coatings and related products in Mexico and sells them in Mexico and Central America through approximately 3,600 independently owned and operated stores. The company also sells products through regional retailers, wholesalers and direct sales to customers.

Comex, a privately held company founded in 1952, has eight manufacturing facilities and six distributions centers. The company's 2013 sales totaled about $1 billion. Approximately 35 percent of those sales comes from industrial coatings and specialty coatings and materials; the other 65 percent comes from architectural coatings, according to PPG's presentation on the acquisition.

While Sherwin-Williams' attempted acquisition ran afoul of regulatory concerns over a potential monopoly on market share, PPG called its sales of architectural coatings in Mexico "negligible."

2nd-Largest Deal

PPG's $2.3 billion deal would be the second-largest acquisition in PPG's history, a title currently held by the $1.05 billion acquisition of AkzoNobel's North American decorative paints business in 2013.

(The company's largest acquisition was of SigmaKalon Group for $3.1 billion in 2008.)

"We are excited to participate in the growing Mexican economy and look forward to working with the Comex team as we integrate the business into PPG," Bunch said.

PPG Industries

"The acquisition is very complementary to PPG as it adds a leading architectural coatings business in Mexico and Central America, a region where we have negligible architectural coatings presence," PPG's CEO Charles Bunch said.

Comex CEO Marcos Achar Levy said, "In these times of globalization and highly competitive markets, strategic alliances allow the development of companies and its individuals. ... Being part of PPG gives us new opportunities and synergies that will allow us to continue to significantly grow in our markets."

PPG's Protective and Marine Coatings (PMC) business previously had a licensee agreement with Comex, but terminated it in March. At the time, the company said it would instead sell and service its Amercoat brand in Mexico directly.

PPG did not give a reason for nixing the distribution deal, saying only that the change would allow it to work "more closely with our customers."

Sherwin's Comex Turmoil

The Sherwin-Williams Company started courting a Comex acquisition in November 2012, when it announced plans to buy the company for $2.34 billion in an all-cash transaction.

The Federal Competition Commission of Mexico rejected the largest part of the deal in July 2013. The commission said the acquisition would give the combined company 48 to 58 percent of the regional market share—10 times that of its closest competitor.

Nevertheless, Sherwin-Williams pushed forward to complete the acquisition of Comex's North American paint businesses in September 2013. Sherwin-Williams paid $90 million in cash and assumed about $75 million in liabilities for Comex's 314 stores and eight manufacturing sites in the U.S. and Canada.

Meanwhile, both companies appealed the antitrust ruling.

Mexican regulators again rejected the deal in October 2013. Sherwin-Williams met with the commission in March 2014 "to discuss various issues relating to potential remedies required" for regulatory approval. The company said it had not refiled its appeal, and less than a month later announced that it was dropping its offer to acquire the Mexican operations of Comex.

Litigation a Non-Issue

Comex then filed suit against Sherwin-Williams in May, saying the company's efforts to get approval after the second rejection were "well below" the standards set in the purchase agreement, according to Reuters.

Charles Bunch
PPG (left)  / Comex (right)

PPG CEO Charles Bunch (left) and Comex CEO Marcos Levy (right) both expressed enthusiasm over the acquisition.

Sherwin-Williams defended its conduct throughout the attempted deal, stating the sellers "incorrectly" accused the company of breaching its agreement with Comex. Sherwin-Williams has asked the Supreme Court of New York to declare that it had used commercially reasonable efforts to complete the acquisition.

Because the deal hadn’t closed by March 31, 2014, Sherwin-Williams said that under the terms of the agreement, either party could cancel without being in material breach.

PPG said it did not expect the litigation to impact the transaction. "We understand that the sellers of Comex, and not Comex, are parties to that litigation," the company stated during its conference call.

Funding the Purchase

PPG will "likely" fund the acquisition primarily with cash and short-term investments, according to Bunch.

However, the company "has not ruled out" acquiring more debt to fund part of the purchase, he said. PPG expects the deal to be "immediately accretive to earnings" and anticipates acquisition-related synergies of 3 to 4 percent of acquired sales over a two-year period.

As of March 31, PPG reported $3.0 billion of cash and short-term investments on hand.

Global Expansion

"This acquisition is consistent with our stated strategy to expand our global coatings business portfolio. Following this transaction, we will continue to have a strong cash balance, expanded free cash flow, and a high degree of financial flexibility, and we expect additional, disciplined cash deployment focused on value creation for our shareholders," Bunch said.

In January, PPG announced all-time record full-year earnings for 2013, as well as a 25 percent increase in fourth-quarter net sales for the Performance Coatings division.

PPG Industries

PPG says its current architectural coatings presence in Mexico is "negligible."

The company continued its hot streak into 2014, with first-quarter net sales from continuing operations of $3.6 billion, up 17 percent over the prior-year period, and an increase in adjusted earnings per diluted share of more than 40 percent year over year. PPG will announce its Q2 results July 17.

PPG's Other Plans

PPG has been beefing up its presence south of the border throughout 2014. In June, the company completed a previously announced acquisition of Canal Supplies Inc. in Panama and announced plans to invest about $40 million in its coatings plant in Sumare, São Paulo, Brazil.

Terms of the Canal Supplies deal were not disclosed. The privately owned company distributes protective and marine coatings to customers in Central America.

PPG expects to finish its expansion project in Brazil in 2015, including the addition of a 65,000-square-foot plant for on-site resin production to manufacture the company's electrocoat products.

Earlier this year, PPG said it would spend $27 million to expand its manufacturing facility in San Juan del Rio, Queretaro, Mexico. That project is also expected to wrap up in 2015 and will include four new buildings, totaling about 100,000 square feet of additional production and laboratory space.


Tagged categories: Acquisitions; Architectural coatings; Comex; Laws and litigation; Market share; PPG; Sherwin-Williams

Comment from peter gibson, (7/8/2014, 1:16 PM)

PPG buys it; but SW how is that ?

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