Sherwin-Williams to acquire Valspar in $9.3bn paint deal

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.