Valspar Corp.'s stock gained 23 percent Monday as investors welcomed the news that the paint and coatings giant will soon be acquired by Sherwin-Williams Co. in an $11.3 billion deal.
However, the verdict is out on how the deal will affect Minneapolis.
Sherwin-Williams President and CEO John Morikis told analysts during a conference call on Monday that he was not prepared to say what would happen to the Downtown East headquarters campus where Valspar and its predecessors have had a presence for more than 100 years.
"Let me make one thing explicitly clear. We do not buy companies to dismantle them," he said. "Valspar has a hugely talented workforce. And they are a huge component in making this transaction a success."
That may do little to ease jitters until more details are revealed in May, when Sherwin-Williams again meets with analysts. Valspar has about 600 employees in Minneapolis.
While Valspar's shares rose $20, to $104, soon after Wall Street's starting bell and closed the day at $103.22, up $19.39 or 23 percent, Sherwin-Williams' shares were down $15.40, or 5.3 percent, to close at $273.29.
Cleveland-based Sherwin-Williams announced Sunday that it plans to pay $113 a share, or $11.3 billion, in cash for Valspar, which makes paints and industrial and package coatings across the world.
When the biggest deal in Sherwin-Williams' 150-year history closes in the first quarter of 2017, the company will boast $15.6 billion in combined annual revenue, $2.8 billion in profits, and 58,000 employees and customers in more than 115 countries. The company said it valued Valspar's international business.
The deal will generate $280 million to $320 million in synergistic savings over two years, Sherwin-Williams said. Savings are expected from manufacturing efficiencies, raw material volume discounts and cuts to sales and administrative expenses.
Similar merger deals have resulted in cuts in employment and philanthropy work locally, and state officials are bracing for changes.
"Valspar has a long and rich history in Minnesota," said Katie Clark Sieben, commissioner of the Minnesota Department of Employment and Economic Development in a statement. "While there are many unknowns in the early stages of any acquisition, it is encouraging that Sherwin-Williams plans to maintain a strong presence in Minnesota, and we will continue to provide assistance to ensure those jobs remain in our state."
Less than two years ago, Valspar finished a $40 million renovation of its 111-year-old headquarters in downtown Minneapolis. The four-building complex now houses a state-of-the-art R & D center, corporate offices and more than 400 employees, including 110 scientists. Valspar also has a floor in an Ameriprise Financial office building downtown.
It has been a strong contributor to Twin Cities Habitat For Humanity for at least 17 years. Last year, it committed $36 million in national paint supplies for the next five years.
"Valspar has been a great partner of Habitat both locally and nationally," said Sue Haigh, president of Twin Cities Habitat for Humanity. "Would we love to have the headquarters be here in the future? Sure. But it is a change, and we will have to deal with it."
Twin Cities Habitat doesn't have a relationship with Sherwin-Williams, she said.
On the national front, investment analysts who follow the company profusely congratulated both companies during Morikis' Monday call.
"This was a long ways coming, but glad you guys finally got together," said Longbow Research analyst Dmitry Silversteyn.
The pairing had been speculated for years among investors, as both companies pursued other and much smaller deals.
Morikis and Valspar CEO Gary Hendrickson said they do not expect U.S. antitrust problems from regulators. As a precaution, they factored in a price reduction — from $113 to $105 per Valspar share — should the merged company be required to divest assets of $650 million to $1.5 billion worth of revenue. Sherwin-Williams has the right to walk away from the deal should regulators require the divestiture of assets worth more than $1.5 billion in revenue.
That scenario is "highly unlikely," Morikis said. He emphasized that the $113 per share sales price is where he expects the deal to close. That represents a 41 percent premium above Valspar's 30-day trading price and an 18 percent premium above its 52-week-high stock price.
The deal makes sense given "what a perfect fit these two companies are," Hendrickson said. The board took weeks to scrutinize the deal, and "we determined this was the best way to maximize value for our shareholders and significant opportunities to our employees and value to our customers."
S&P Global Market Intelligence analyst Christopher Muir wrote investors Monday saying S&P believes the deal will close at the planned $113 a share. Muir upgraded his recommendation of Valspar's stock but downgraded his Sherwin recommendation from buy to hold.
Both companies are giants in the paint arena; however, Sherwin-Williams is better known for its 4,100 paint stores that cater to homeowners, contractors and the architectural trades. Both companies sell through retail giants such as Lowe's.
Morikis said Monday that Sherwin-Williams was "thrilled" about acquiring Valspar, which will give Sherwin-Williams $4.4 billion in sales, $400 million in profits, 11,000 employees worldwide, and a much stronger presence in Asia and Europe and in packaging and coatings.
Currently, about 16 percent of Sherwin-Williams' revenue comes from outside the United States. After the acquisition, that will jump to 24 percent.
Dee DePass • 612-673-7725
