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Sherwin-Valspar Deal Set to Close This Week

Wednesday, May 31, 2017

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Last week, the United States Federal Trade Commission and the Canadian Competition Bureau both gave their approval to the merger between two of the largest paints and coatings manufacturers in the world, paving the way for the close of the deal this week.

The Sherwin-Williams Company (Cleveland) will finalize its $11.3 billion acquisition of Valspar Corp. (Minneapolis) on Thursday (June 1), according to the companies.

John Morikis and Gary Hendrickson
Valspar

The Sherwin-Williams Company (Cleveland) will finalize its $11.3 billion acquisition of Valspar Corp. (Minneapolis) on Thursday (June 1), according to the companies. Last week, the United States Federal Trade Commission and the Canadian Competition Bureau both gave their approval to the deal, meaning the companies cleared the final hurdles in the process.

The news comes after the companies agreed in April to sell Valspar’s North American wood coatings business to Axalta Coating Systems. That divestiture was required by the North American trade regulators to ensure the new company would not have too great a share of the industrial wood coatings business in the region.

Two Large Players

The acquisition of Valspar—reportedly the world’s eighth-largest coatings company by sales, with $4.19 billion in revenue—by Sherwin-Williams, the third largest, was first announced in March 2016. Sherwin-Williams reported about $11.9 billion in total sales in 2016.

Sherwin Williams
Photo courtesy of Sherwin-Williams / Bright Eye Photography

Sherwin-Williams reported record sales of $2.76 billion in the first quarter of 2017.

The companies had originally intended for the deal to close during the first quarter of 2017, but the finalization of the acquisition was pushed back in March when they revealed that regulators had called for a divestiture. The sale of Valspar’s wood coatings business satisfied regulators, and both American and Canadian regulators gave their approvals, contingent on the close of the Axalta deal.

Sherwin-Williams reported record sales of $2.76 billion in the first quarter of 2017. Valspar's net sales were up as well, at $907.6 million, though those numbers were bolstered partly by the company's wood coatings unit, prior to its sale.

FTC’s Wood Coatings Concerns

According to the FTC, the wood coatings business was a concern because Sherwin-Williams and Valspar previously were two of the top three industrial wood coatings manufacturers in the region. The agency had reason to believe the new entity “would be likely to exercise unilateral market power,” reducing competitive market behavior.

The FTC noted that barriers to entry in the industrial wood coatings market are high, because of the major investment in getting such an operation off the ground in terms of capital costs, and because of brand loyalty among industry consumers.

Wood coatings
Valspar

Regulators required the companies to divest of Valspar's industrial wood coatings business, which has been acquired by Axalta Coating Systems.

The two plants involved in the acquisition by Axalta are in High Point, North Carolina, and Cornwall, Ontario, according to the FTC. Research and development facilities, testing facilities, warehouses, and other assets are also included. The FTC says it will monitor the deals to ensure that Sherwin-Williams properly carries out the necessary divestment.

Scale of the Deal

The merger will reportedly create a company with $15.6 billion in sales, with $2.8 billion in adjusted earnings annually. Sherwin-Williams will likely become the world’s largest coatings company by sales, taking the place of PPG Industries (Pittsburgh), which reported $14.75 billion in revenue last year.

PPG, however, continues to pursue a merger with rival AkzoNobel (Amsterdam), the world’s second-largest coatings company. The combination of those two firms would create a company even larger than the new Sherwin-Williams. AkzoNobel's executive leadership, however, has been resistant to the idea of a merger.

   

Tagged categories: Acquisitions; AkzoNobel; Axalta; Business matters; Coatings manufacturers; Mergers; PPG; Sherwin-Williams; Valspar

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