Commentary

Sherwin-Williams, Valspar Will Combine Their Colors

Sherwin-Williams will acquire rival paint-and-varnish maker Valspar in a deal the companies say has “an enterprise value” of about $11.3 billion with estimated annual savings of $280 million and synergies that extend beyond the aesthetic.

“Sherwin-Williams’s famous logo shows a can of red paint pouring over a globe with the slogan ‘Cover the Earth.’ On Sunday, the paint maker took a step toward that goal,” is how Michael de la Merced paints the acquisition in TheNew York Times

“Sherwin-Williams manufactures products under the Sherwin-Williams, Dutch Boy, Krylon, Minwax, Thompson's Water Seal and other brands,” reports Reuters’ Scott DiSavino. “In addition to making coatings for the construction, industrial and transportation markets, Valspar sells consumer paints under the Valspar, Cabot Stain, Devine Color and other brands.”

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The deal “includes an unusual cut to the purchase price should regulators demand too big a pound of flesh,” observes Liz Hoffman for TheWall Street Journal. “If Sherwin-Williams is forced to divest businesses representing more than $650 million of Valspar’s 2015 revenue, the price it pays investors drops by $8 a share. A provision that allows Sherwin-Williams to walk away entirely if divestitures climb to $1.5 billion in revenue is more common in deals.”

It’s a “nuanced” and “creative” approach to “antitrust risk, which is usually dealt with more bluntly, as with the all-or-nothing walk-away right,” Hoffman writes.

At the same time, Sherwin Williams president and CEO John Morikis “played down any suggestion that the antitrust challenges would be insurmountable,” de la Merced writes. “‘We’re confident in getting regulatory approval,’ he said. Of the potential price cut, he added, ‘This gives clear and greater certainty should it take a different path.’”

An investor webcast, which can be accessed here, is scheduled for 8 a.m. ET

“The transaction, the biggest acquisition in Sherwin-Williams' 150-year-history, would create a global paint company with combined revenues of about $15.6 billion, adjusted earnings of $2.8 billion, and about 58,000 employees,” Janet H. Cho reports for the Cleveland Plain Dealer. “Those figures include estimated annual synergies of $280 million in sourcing, selling, general and administrative expenses, and process and efficiency savings within two years after the deal closes.”

The transaction, which has been unanimously approved by the boards of directors of both companies, is subject to approval by Valspar shareholders. It is expected to close by the end of the first quarter of 2017.

Sherwin-Williams, which was founded in Cleveland in 1866, posted record sales of $11.3 billion in 2015, and profits-per-share were up 27% to $11.16, Cho reports.

“Valspar is an excellent strategic fit with Sherwin-Williams,” Morikis says in the joint statement announcing the agreement, which represents Sherwin-Williams paying a premium of approximately 41% to Valspar’s weight average price for 30 days. 

“The combination expands our brand portfolio and customer relationships in North America, significantly strengthens our Global Finishes business, and extends our capabilities into new geographies and applications, including a scale platform to grow in Asia-Pacific and [Europe, the Middle East and Africa],” Morikis continues.

Valspar chairman and CEO Gary Hendrickson “described the acquisition as ‘compelling’ because it delivered ‘immediate and certain cash value to our stockholders,’ write the Financial Times’ Ben McLannahan and James Fontanella-Khan on CNBC.com, reporting that the deal is expected to close by the end of the first quarter 2017.

Valspar is the fifth-largest North American manufacturer of paints and coatings, according to its company history. It traces its roots to Boston’s Broad Street, where Samuel Tuck opened a shop called Paint and Color in 1806. 

After becoming varnish-maker Valentine & Co., it relocated to New York City in 1870. It became Valspar in 1932, merged with the Rockcote Paint Company and moved to Rockford, Ill., in 1958 and, after several more deals, combined in 1970 with privately held Minnesota Paints and moved to Minneapolis, 

“While consumers might buy Valspar's Cabot stain products or its paint lines at Target, Lowe's, Home Depot or Ace Hardware stores, its products have covered everything from Coca-Cola cans to Yamaha grand pianos to aviation pioneer Charles Lindbergh's Spirit of St. Louis to naval submarines,” writes Pat Pheifer for the Minneapolis Star Tribune.

It has 25 manufacturing facilities in the United States and others in Europe, China and Latin America, Valspar spokeswoman Kimberly Welch tells Pheifer. There are 10,500 employees with about 600 in Minneapolis, where Sherwin Williams’ Morikis said it intends to “maintain a significant presence.”

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