Sherwin-Williams Company (SHW) to Buy Valspar Corporation (VAL)

Sherwin Willams

The Sherwin-Williams Company (NYSE:SHW) signed a definitive agreement to buy Valspar Corporation (NYSE:VAL) for $113 per share or approximately $11.3 billion in cash.

According to Sherwin-Williams, the acquisition would help accelerate its growth in Asia Pacific and EMEA and extend its capability set into coil and packaging.

The $113 per share acquisition price represents a 41% premium to the volume weighted average price of Valspar’s stock for 30 days until March 18, 2016. The transaction was unanimously approved by the Board of Directors of both companies.

Valspar is an excellent strategic fit for Sherwin-Williams

In a statement, Sherwin-Williams President and CEO John G. Morikis said Valspar is an “excellent strategic fit” for their company. According to him, the merger would increase its brand portfolio and customer relationships in North America, and it would also strengthen its Global Finishes business and extend its capabilities in new applications and geographies.

“Customers of both companies will benefit from our increased product range, enhanced technology and innovation capabilities, and the transaction’s clearly defined cost synergies,” said Morikis.

Sherwin-Williams and Valspar have highly complementary paints and coatings offerings. The combined companies would become as premier global paints and coatings provider. The pro forma 2015 revenues and adjusted EBITDA of the combined company were estimated to be around $15.6 billion and $2.8 billion, respectively.

Sherwin-Williams track record in integrating acquisitions

Morikis emphasized that Sherwin-Williams has a “long track record of successfully integrating acquisitions.” He also expressed confidence in the industrial logic of the transaction and its ability to achieve an estimated $280 million in annual synergies in the areas of sourcing, SG&A, process and efficiency savings within two years and long-term annual synergy target of $320 million

“We expect this transaction to be immediately accretive excluding one-time costs and meaningfully enhance our cash flow generation profile,” said Morikis.

The right partner for Valspar

On the other hand, Valspar Chairman and CEO Gary E. Hendrickson said the transaction was compelling and delivers immediate and certain cash value for the company’s shareholders.

He added that Sherwin-Williams is the right partner for Valspar to utilize its brands and create a premier global coatings company

“We are confident this transaction will create opportunities to accelerate many of the operating initiatives already underway at Valspar. We look forward to positioning Valspar to enter its next phase of growth and success and to working closely with Sherwin-Williams to seamlessly close this transaction. Together we will continue to build on the solid momentum our team has worked so hard to create,” said Hendrickson.

The companies expect to close the transaction by the end of first quarter of 2016, subject to closing conditions and regulatory approvals.