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Sherwin-Williams Buys Comex U.S./Canada Biz

Zacks Equity Research

Paint giant Sherwin-Williams (SHW) has completed its takeover of the U.S. and Canadian businesses of Mexico’s leading paint company Consorcio Comex S.A. de C.V. for $90 million in cash and assumed liability of around $75 million.

The acquisition is a strategic fit for Sherwin-Williams and will enable it to better serve its customers across some of its key markets. The company plans to offer more color on the acquisition in its third-quarter earnings call on Oct 25.  

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.

Sherwin-Williams, in Nov 2012, agreed to buy Comex for roughly $2.34 billion, including debt. While the company has closed the takeover of its U.S. and Canadian businesses, it remains committed 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. Sherwin-Williams’ shares were hammered by the news, shedding as much as around 11%.  

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 paints companies along with Akzo Nobel (AKZOY), PPG Industries (PPG) and Valspar (VAL), follows a strategy of growth through acquisitions and internal initiatives such as efficient working capital management and innovation. Its philosophy is to diversify its customer base and expand its operations into various geographies.

Sherwin-Williams continues to invest in its Paint Stores Group segment to boost market share and is implementing effective pricing strategies to offset higher raw material costs. However, its Latin American operations are facing soft end-market demand and currency headwinds.

Sherwin-Williams is a Zacks Rank #4 (Sell) stock.

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