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Sherwin-Williams, Valspar Make $11.3B Deal

Tuesday, March 22, 2016

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In a deal valued at $11.3 billion, The Sherwin-Williams Company and The Valspar Corporation jointly announced that they have entered into a definitive agreement under which Sherwin-Williams will acquire Valspar.

The proposed all-cash deal—the largest in Sherwin-Williams' 150-year history—was announced Sunday (March 20). It is subject to regulatory approvals as well as Valspar shareholder confirmation. The boards of directors of both companies have unanimously approved the deal.

The companies anticipate a close by the end of the first quarter next year.

Sherwin Williams Plans to Acquire Valspar
Images: Sherwin-Williams

(Left) John G. Morikis, president and CEO of Sherwin-Williams and Gary E. Hendrickson, chairman and CEO of Valspar, referred to the deal as a “transformational transaction” and “a perfect fit” in a conference call Monday (March 21) morning.

Founded in 1806, Minneapolis-based Valspar is the world’s fourth largest paint and coatings company, operating 57 manufacturing facilities across 20 countries and six continents.

The company reported 2015 sales of $4.4 billion.

Sherwin-Williams reports that the combined company would have sales of approximately $15.6 billion, adjusted earnings of $2.8 billion, with approximately 58,000 employees. The resulting company would be the top paint and coatings producer in the world, surpassing PPG Industries Inc. and AkzoNobel NV.

‘Perfect Fit’

Leaders of the two companies referred to the deal as a “transformational transaction” and “a perfect fit” in a conference call Monday (March 21) morning.

The acquisition would increase Sherwin-Williams’ global footprint in Asia-Pacific and Europe, the Middle East and Africa (EMEA) and add new capabilities in packaging and coil segments, said Sherwin-Williams’ President and CEO John G. Morikis. Morikis stepped into the CEO role in January.

“Customers of both companies will benefit from our increased product range, enhanced technology and innovation capabilities, and the transaction's clearly defined cost synergies,” he said.

Gary Hendrickson, Valspar’s chairman and CEO, echoed Morikis, noting that the two companies shared the same cultural values and commitment to customers and product innovation.

“We believe that Sherwin-Williams is the right partner to utilize our array of brands and create a premier global coatings company,” Hendrickson said.

Valspar Segments

Morikis said Sherwin-Williams has admired Valspar's packaging and coil lines and its position across Asia-Pacific and EMEA, where Sherwin-Williams has limited presence.

Both Sherwin-Williams and Valspar believe that the transaction will receive all necessary regulatory clearances. However, under the terms of the agreement, Sherwin-Williams can terminate the proposal if more than $1.5 billion of divestitures are necessary for antitrust approval.

Deal Details

Sherwin-Williams has agreed to pay $113 per share, representing a 41 percent premium over Valspar’s average volume-weighted share price for the 30 days including and leading up to Friday (March 18).

The transaction would immediately contribute to Sherwin-Williams’ earnings, the companies said, excluding one-time costs.

“The cost synergies are significant,” Morikis said, “We expect to realize the full run rate of $280 million in the second full year.”

Global Coatings
Source: Public filings and company estimates. Note: reflects USD exchange rate average for EU, JPY and NOK (1) Excludes Non-Coatings Segments

The deal will create a premier global paints and coatings provider, according to the companies.

Sherwin-Williams will continue to be headquartered in Cleveland, and the company intends to maintain a significant presence in Minneapolis, according to Morikis.

Ultimately, the transaction is about growth, Morikis said. Sherwin-Williams currently gets 84 percent of its sales from the U.S.

The Valspar acquisition will accelerate Sherwin-Williams' strategy to bring scale and platform to the Asia Pacific and EMEA regions as well as build upon strong brands and technology, Morikis added.

Sherwin-Williams intends to finance the transaction through a combination of cash on hand, liquidity available under existing facilities and new debt. The company reports it has obtained committed bridge financing from Citigroup Global Markets Inc. in support of the transaction and is committed to maintaining its current dividend and rapid deleveraging using significant free cash flow.

Good News for Industry?

The Sherwin-Williams and Valspar deal as well as the recent Dow and DuPont merger are “good news for the sector as a whole,” experts say.

Mergers and acquisitions could be the key to boosting growth for the industry, which faces challenges due to global environment prices and demand, according to an analysis on seekingalpha.com.

   

Tagged categories: Acquisitions; Business matters; Business operations; Coatings manufacturers; Mergers; Sherwin-Williams; Valspar

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