Valspar Corp. stock has jumped 24% on Monday during the opening session following announcement of its acquisition by industry rival Sherwin Williams Co. for $11.3 billion. However, the announcement outrages some Sherwin-Williams' share holders who consider Valspar as overvalued.
Sherwin Williams stock has been downgraded to sector 'weight' on Monday by Ivan Marcuse, analyst for KeyBanc Capital Markets. Prior to that, the stock has held the 'overweight' status at least for the last three consecutive years. Marcuse believes, Sherwin Williams is paying a "high price" in more ways than one, reports MarketWatch.
Sherwin Williams doesn't claim to have a long and storied track record in making deals. In 2012, the coating company has agreed buying Mexico's largest paint maker, Consorcio Comex SA. However, the deal has been blocked by antitrust regulators.
The opportunity has finally been availed by larger industry rival PPG through sewing up a deal of its own later in 2014. Though prior to going for the deal Sherwin-Williams has taken notes, but still there is high probability that the deal may attract the regulator's eyebrow once again. In fact, the pending Valspar purchase is more than ten times the size of its largest completed deal to date, acquisition of Thompson Minwax for $830 million in 1996, according to a report published in Bloomberg.
Meanwhile, John Morikis, CEO and President of Sherwin Williams has declined to forecast on fate of Valspar's headquarters, staff and other infrastructures. He expects generating savings for $280 million to $320 million over two years required to close the deal. The deal is scheduled to be closed during the first quarter of 2017. However, the savings are expected to be generated from efficiencies, raw material volume discounts and cuts to sales and administrative expenses, reports Star Tribune quoting John Morikis. Following the announcement of the deal, Sherwin Williams' stock has tumbled 5.4% during active Monday afternoon trade after witnessing the 10 month high on Friday. The recent tumbling reflects a lack of investors' confidence over feasibility of the deal. However, Valspar's stock has soared 24% on the same day towards setting a record close and acknowledged as the biggest gainer on that day in the New York Stock Exchange.
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