The Sherwin-Williams Company’s (SHW) shares slipped around 4% following the news that its appeal related to the pending acquisition of Mexico’s leading paint company Consorcio Comex S.A. de C.V. was denied and the acquisition declared unauthorized by the Federal Economic Competition Commission of Mexico. The company’s shares closed at $188.47 in the trading session following the announcement, shedding as much as around 3%.
Sherwin-Williams is reviewing the Commission's decision and reconsidering all options including resubmission of the appeal once again with the Mexican regulators.
Sherwin-Williams, in Nov 2012, agreed to buy Comex for roughly $2.34 billion, including debt. The company, in Sep 2013, completed its acquisition of the U.S. and Canadian businesses of Comex for $90 million in cash and assumed liability of around $75 million.
Comex sells paints and coatings under a host of brands in the U.S. and Canada. Its operations across these markets consist of 234 and 80 company operated stores in the U.S. and Canada, respectively. It also has 5 manufacturing sites in the U.S. and 3 in Canada. Moreover, Comex provides paint and coatings products to roughly 1,500 external retail locations in Canada.
While the company has closed the takeover of the U.S. and Canadian businesses, it is yet to secure the green light from the Federal Competition Commission of Mexico to complete the acquisition of Comex’s core Mexican operations.
The Mexican antitrust regulator, in Jul 2013, rejected the deal in a 3-2 vote citing that the merger would allow the combined company to set artificially high prices and commit anti-competitive practices, thereby damaging consumer interests.
The acquisition of Comex, the largest in the company’s history, will enable Sherwin-Williams to expand its presence in those markets where its store count is low. Moreover, it will allow Sherwin-Williams to reinforce its architectural paint business in the Americas.
Sherwin-Williams, which is among the leading paint companies along with PPG Industries Inc. (PPG) and Akzo Nobel NV (AKZOY), posted impressive third-quarter 2013 results on Oct 25.
The company’s adjusted (excluding one time items) earnings of $2.68 per share beat the Zacks Consensus Estimate of $2.62. Including one time items, earnings came in at $2.55 per share, up roughly 14% from $2.24 per share a year ago. The improvement was driven by improved results of the Paint Stores, Consumer and Global Finishes Groups.
Sherwin-Williams posted net sales of $2.85 billion in the quarter, a 9.4% year over year rise. It surpassed the Zacks Consensus Estimate of $2.78 billion. The improvement was driven by positive impact of acquisitions and increased paint sales volume of Sherwin-Williams’ Paint Stores Group.
While the acquisition of Comex’s U.S. and Canadian businesses has ushered in significant opportunity for Sherwin-Williams, associated integration costs are expected to dilute earnings in the fourth quarter. Factoring in that impact, the company has cut its earnings forecast for 2013. Moreover, Sherwin-Williams remains exposed to currency headwinds and contends with raw material pricing pressure
Sherwin-Williams currently retains a Zacks Rank #3 (Hold).
Another paint company worth considering is RPM International Inc. (RPM) with a Zacks Rank #2 (Buy).