Sherwin-Williams Co, the largest US paint retailer, said it agreed to buy rival Valspar Corp for about $9.3bn in cash to become the world’s biggest coatings maker.
Sherwin-Williams will pay $113 a share, the companies said yesterday in a statement. The price is about 35% higher than Valspar’s closing price of $83.83 on Friday, when its market value reached $6.63bn. Valspar jumped 26% to $106 in pre-market trading.
John Morikis, chief executive officer of Sherwin-Williams, is forging the company’s biggest deal ever less than three months after succeeding longtime CEO Christopher Connor. Sherwin-Williams, which gets 84% of sales in the US, gains a company that generates almost half of its revenue abroad while also adding coatings for coils and packaging. Valspar will help Sherwin-Williams expand in the Asia Pacific region and Europe, Morikis said in an interview.
“This accelerates the strategy we have long had in place,” Morikis said by telephone yesterday. “Valspar is a company we have long admired.”
Morikis said the talks started after his Jan. 1 start as CEO, when “the stars aligned.”
Sherwin-Williams paint stores and brands such as Dutch Boy, Easy Living and MAB helped generate sales of $11.3bn last year. The company will add $4.39bn of Valspar revenue from brands such as Valspar Ultra and Duramax, 12% of which comes from China and 7% from Australia, according to data compiled by Bloomberg.
The deal “makes a ton of strategic sense,” said Dmitry Silversteyn, a Cleveland-based analyst at Longbow Research who has buy recommendations on both companies. It boosts Sherwin- Williams’s sales to US do-it-yourself paint customers, international markets and industrial coatings markets, three areas where the company is under-exposed, he said in an e-mail yesterday.
The combination also will catapult Cleveland-based Sherwin-Williams from the world’s third-largest paint company to first, surpassing industry leader PPG Industries Inc and Akzo Nobel, Morikis said. Minneapolis-based Valspar is ranked No 4. Sherwin-Williams has gained 11% this year, closing at $288.69 on Friday. The shares have more than tripled in the past five years, while Valspar’s stock has more than doubled. Stock of Sherwin-Williams trading in Germany exchanged at $286 at 11:13am local time.
The two companies plan to hold a call for analysts and investors at 8am New York time to discuss the transaction.
If antitrust regulators require divesting assets that generate more than $650mn in revenue, the transaction price would drop to $105 a share, and if more than $1.5bn of divestitures are necessary for approval Sherwin-Williams has the right to terminate the deal.
Morikis said the company expects antitrust regulators will require minimal divestitures at most.
Sherwin-Williams abandoned a bid in 2014 to acquire Comex, Mexico’s largest paint company, after Mexican regulators blocked the sale.
Including $2bn in Valspar debt that Sherwin-Williams will assume, the transaction is valued at $11.3bn, Sean Hennessy, chief financial officer of the acquiring company, said by telephone. The equity purchase will be financed with $8.3bn of new debt and $1bn of cash, he said. The company said it has committed bridge financing from Citigroup.
Sherwin-Williams said it expects to wring $280mn of annual savings from the combination within two years, eventually rising to $320mn. The deal should close by the end of the first quarter next year, the companies said. The combined company will have 58,000 employees.
Citigroup acted as lead financial adviser to Sherwin- Williams, which also received advice from JPMorgan Chase & Co Jones Day and Weil, Gotshal & Manges were legal advisers.
Goldman Sachs Group and Bank of America Corp provided financial advice to Valspar, which had Wachtell, Lipton, Rosen & Katz as its legal adviser.