Valspar Votes on Sale to Sherwin-Williams
June 28 2016 - 10:10PM
Dow Jones News
By Bob Tita
Paint maker Sherwin-Williams Co. could move a step closer to
expanding access to do-it-yourself house painters if shareholders
from Valspar Corp. approve the sale of their company Wednesday for
as much as $9.3 billion.
The monthlong balloting by Valspar investors will culminate with
a special meeting Wednesday morning when results of the vote will
be revealed.
But even if shareholders approve the sale of Valspar to
Sherwin-Williams, it could take months for them to find out how
much they will actually receive.
Cleveland-based Sherwin-Williams has agreed to pay up to $113 a
share for Valspar's. The offer represents about a 35% premium to
Valspar's share price before the all-cash deal was revealed in
March.
Valspar shares closed Tuesday at $107.61, but the final payout
is contingent on regulatory review.
Federal antitrust regulators are combing through the two
companies' business lines in paint and industrial coatings for
potentially unfair market concentrations. If the Federal Trade
Commission demands that certain businesses be shed as a condition
for approving the sale, Sherwin-Williams would lower its purchase
price.
If Sherwin-Williams is forced to divest businesses with more
$650 million of annual revenue, the purchase price would fall to
$105 a share. Sherwin-Williams could abandon the purchase entirely
if the required business divestments amount to least $1.5 billion a
year in revenue.
"Both companies want to get the deal done," said Ghansham
Panjabi, an analyst at Milwaukee-based Robert W. Baird. "But they
would not have structured the deal that way if there wasn't a
potential for antitrust."
Executives from both companies have said they believe the
probability of having to shed business is low. Although both
companies make paint, their retailing strategies are different.
The companies are counting on the distinctions to help keep the
deal intact.
Minneapolis-based Valspar mostly sells paint through a variety
of consumer-focused store chains, including do-it-yourself home
improvement retailers, such as Lowe's Co. and Ace Hardware
stores.
Sherwin-Williams, meanwhile, relies on more than 4,000
company-owned stores in the U.S. and Canada to sell paint,
primarily to professional painters and contractors. These specialty
paint stores have come under increasing competitive pressure in
recent years from big-box retailers.
With Valspar, Sherwin-Williams would get more exposure to the
major retailers. Sherwin's consumer-market paint brands include
Dutch Boy, HGTV Home and Minwax wood stains.
The two companies combined would account for about 20% of the
paint revenue at do-it-yourself retailers in the U.S., according to
stock research firm Morningstar Inc. That is slightly above
competitors PPG Industries Inc. and Masco Corp, the maker of Home
Depot's Behr brand.
Valspar's international business would decrease Sherwin's heavy
reliance on the U.S. market. Valspar also generates about $2.5
billion annually from the sales of coatings to the packaging
industry and other industrial users.
Overall, Sherwin-Williams expects its annual revenue from paint
and coatings to grow by about 38% to $15.6 billion. The company
anticipates pretax income increasing about 55% to $2.8 billion.
Reaching the profit target will hinge on the Sherwin-Williams'
ability to shrink overhead expenses, material costs and other
shared expenses. Sherwin is forecasting cost reductions of $280
million a year by 2018 and increasing to $320 million annually
later on.
"Most of the savings is achievable," said David Wang, a
Morningstar equity analyst.
Representatives for the two companies declined to comment
Tuesday about the sale or the shareholder vote.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
June 28, 2016 21:55 ET (01:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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