Sherwin-Williams, Valspar Merger Cleared by FTC & CCB

Paint giant, Sherwin-Williams SHW said that it has secured approvals from the U.S. Federal Trade Commission ("FTC") and the Canadian Competition Bureau ("CCB") for its proposed acquisition of Valspar VAL.

The approvals came after the companies agreed to the sale of Valspar's North American Industrial Wood Coatings business assets to Axalta Coating Systems for $420 million in cash.

The approvals from the FTC and the CCB were the only remaining regulatory clearances needed to complete the transaction. Sherwin-Williams now expects the deal to complete on Jun 1, 2017, subject to customary closing conditions.

Sherwin-Williams, in Mar 2016, agreed to acquire Valspar, in an all-cash deal which is valued at around $11.3 billion. The acquisition 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’ shares rallied around 14.9% over the past one year on the back of strength in its Paint Stores Group unit, outperforming the Zacks categorized Paints & Allied Products industry’s roughly 11.7% gain. The company is benefiting from its cost control initiatives. Moreover, it remains focused on growth through acquisitions and expansion of operations.

Sherwin-Williams saw higher profits on a year-over-year basis in first-quarter 2017. Improved operating results at the Paint Stores and Global Finishes Groups led to the earnings upside. Adjusted earnings of $2.27 per share for the quarter topped the Zacks Consensus Estimate of $2.07.

Revenues rose around 7% year over year to $2,761.4 million in the first quarter, also beating the Zacks Consensus Estimate of $2,740 million. Increased paint sales volumes in Sherwin-Williams’ Paint Stores Group and a change in revenue classification led to higher sales.

For the second quarter, Sherwin-Williams projects mid-to-high single digit percentage increase in net sales, year over year. The company also expects earnings in second-quarter 2017 to be in the range of $4.15 to $4.35 per share, including a 25 cents charge from costs associated with the planned acquisition of Valspar.

For full-year 2017, Sherwin-Williams projects mid-single digit percentage increase in net sales from the prior year. The company raised its earnings view for 2017 and now expects earnings per share for the year in the range of $13.65 to $13.85 per share, compared to $11.99 earned in 2016. The projected earnings per share for the year include a charge of 40 cents per share related to the planned acquisition of Valspar.

Zacks Rank & Key Picks

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

Better-ranked companies in the basic materials space include Huntsman Corporation HUN and The Chemours Company CC, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntsman has an expected long-term growth rate of 7%.

Chemours has an expected long-term growth rate of 15.5%.

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