Sherwin-Williams to acquire Valspar for US$113/share in an all-cash transaction

22 March 2016

The Sherwin-Williams Company and The Valspar Corporation have announced that they have entered into a definitive agreement under which Sherwin-Williams will acquire Valspar for US$113/share in an all-cash transaction or an enterprise value of approximately US$11.3bn. At US$113/share, the transaction, which has been unanimously approved by the Boards of Directors of both companies, represents a premium of approximately 41% to Valspar’s volume weighted average price for the 30 days up to and including March 18, 2016.

Sherwin-Williams and Valspar have highly complementary paints and coatings offerings and this combination enhances Sherwin-Williams position as a premier global paints and coatings provider. The transaction results in an exceptional, diversified array of strong brands and technologies, accelerates Sherwin-Williams growth strategy by expanding its global platform in Asia Pacific and EMEA and also adds new capabilities in the packaging and coil segments. The combined company would have pro forma 2015 Revenues and Adjusted EBITDA (including estimated annual synergies) of approximately US$15.6bn and US$2.8bn, respectively, with approximately 58,000 employees.

John G Morikis, President and CEO of The Sherwin-Williams Company, said: "Valspar is an excellent strategic fit with Sherwin-Williams. The combination expands our brand portfolio and customer relationships in North America, significantly strengthens our Global Finishes business and extends our capabilities into new geographies and applications, including a scale platform to grow in Asia Pacific and EMEA. Customers of both companies will benefit from our increased product range, enhanced technology and innovation capabilities and the transaction’s clearly defined cost synergies. We have tremendous respect for the expertise and dedication of the Valspar team and we are excited about the opportunities that this combination will provide to both companies’ employees. Sherwin-Williams will continue to be headquartered in Cleveland and we intend to maintain a significant presence in Minneapolis.”

Morikis added: "Sherwin-Williams has a long track record of successfully integrating acquisitions. We are highly confident in the industrial logic of the transaction and, once closed, our ability to achieve US$280M of estimated annual synergies in the areas of sourcing, SG&A and process and efficiency savings within two years and our long-term annual synergy target of US$320M. We expect this transaction to be immediately accretive excluding one-time costs and meaningfully enhance our cash flow generation profile."

Gary E Hendrickson, Chairman and CEO of Valspar, said: "We are pleased to announce this compelling transaction, which delivers immediate and certain cash value to our stockholders. We believe that Sherwin-Williams is the right partner to utilise our array of brands and create a premier global coatings company. The combination of Sherwin-Williams and Valspar will benefit our customers, employees and other stakeholders. 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.”

Transaction details

The transaction is expected to close by the end of Q1, 2017 and is subject to the approval of Valspar shareholders and customary closing conditions, including the expiration or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act and regulatory approvals in various other jurisdictions. Both companies believe that the combination will benefit customers and that it will receive all necessary regulatory clearances.

Given the complementary nature of the businesses and the benefits this transaction will provide to customers, Sherwin-Williams and Valspar believe that no or minimal divestitures should be required to complete the transaction. Under the terms of the merger agreement, in what both companies believe to be the unlikely event that divestitures are required of businesses totalling more than US$650M of Valspar’s 2015 revenues, the transaction price would be adjusted to US$105 in cash/Valspar share. Sherwin-Williams would have the right to terminate the transaction in the event that required divestitures exceed US$1.5bn in 2015 revenues. These provisions provide Sherwin-Williams and Valspar with greater closing certainty.

Sherwin-Williams intends to finance the transaction through a combination of cash on hand, liquidity available under existing facilities and new debt. Sherwin-Williams has obtained committed bridge financing from Citigroup Global Markets Inc in support of the transaction and is committed to maintaining its current dividend and rapid deleveraging using significant free cash flow.

Citi acted as the lead financial advisor to Sherwin-Williams and JPN Morgan Securities LLC also acted as financial advisor. Jones Day and Weil, Gotshal & Manges LLP are acting as legal advisors to Sherwin-Williams. Goldman Sachs and BofA Merrill Lynch are acting as financial advisors to Valspar and Wachtell, Lipton, Rosen & Katz is acting as its legal advisor.

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