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Sherwin-Williams, Valspar Extend Termination Date of Merger

Paint makers, Sherwin-Williams SHW and Valspar VAL said that they have extended the terms of their proposed merger agreement. The companies have extended the termination date of the definitive agreement to Jun 21, 2017 from Mar 21, 2017. Sherwin-Williams, in Mar 2016, agreed to buy Valspar in an all-cash deal worth roughly $11.3 billion.

Sherwin-Williams, in Jan 2017, said that it expects divestiture will be required to gain approval of the Federal Trade Commission (“FTC”) for the completion of the Valspar acquisition. The company noted that the expected divestiture represents annual sales less than the threshold of $650 million of Valspar 2015 revenues and it expects to complete the transaction at $113 per share.

Sherwin-Williams, at that time, expected the divestiture and the deal to be closed by the end of Apr 2017. However, the company no longer believes these will be completed by the end of April. The extension of the merger deal has been intended to provide enough time to complete the Valspar acquisition, the company noted.

Sherwin-Williams is moving ahead with the divestiture of a single business and is currently in talks with a number of prospective buyers. The company plans to provide more definitive timing for the divestiture and completion of the deal in its first-quarter 2017 earnings conference call on Apr 20.

The planned acquisition of Valspar will allow Sherwin-Williams to reinforce its position as a leading paints and coatings provider globally leveraging highly complementary offerings, strong brands and technologies.

Valspar is a strategic fit and the merger will extend Sherwin-Williams’ brand portfolio and customer relationships in North America and bolster its global finishes business. The buyout will also significantly enhance Sherwin-Williams’ competitive profile.

The merger would create a premier global paints and coatings company with strong foothold across Asia-Pacific and Europe, the Middle East and Africa (EMEA) regions. Sherwin-Williams expects $280 million in annual synergies within two years following the closure of the deal.

Sherwin-Williams has outperformed the Zacks categorized Paints & Allied Products industry over the past three months, partly driven by strength in its Paint Stores Group unit. The company’s shares have gained around 14.4% over this period, compared with roughly 9.6% gain recorded by the industry.

Sherwin-Williams is actively pursuing initiatives such as aggressive cost control, working capital reductions, supply chain optimization and productivity improvement that continues to yield margin benefits. Moreover, it remains focused on growth through acquisitions and expansion of operations.

However, Sherwin-Williams' Latin American operation remains exposed to currency headwinds and soft end-market demand. The company also remains exposed to volatility in raw material costs.

Sherwin-Williams is a Zacks Rank #3 (Hold) stock.

Sherwin-Williams Company (The) Price and Consensus


Sherwin-Williams Company (The) Price and Consensus | Sherwin-Williams Company (The) Quote

Stocks to Consider

Better-placed companies in the basic materials space include Univar Inc. UNVR and Sinopec Shanghai Petrochemical Company Limited SHI, both holding a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Univar has an expected long-term growth of 9.4%.

Sinopec Shanghai has an expected long-term growth of 9.6%.

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