There are likely to be changes coming in the paint aisle of your local home improvement center.
On Sunday, Sherwin-Williams (SHW) announced plans to acquire Valspar (VAL) in a deal totaling $11.3 billion, inclusive of debt. Cleveland-based Sherwin-Williams will pay Minneapolis-based Valspar $113 a share, which represents a 41% premium to Valspar's volume-weighted average price over the last 30 days.
In a press release announcing the transaction, Sherwin-Williams CEO John Morikis said he expected to realize $280 million of estimated annual synergies within two years of the deal closing and a long-term synergy target of $320 million.
The deal, which is expected to close in the first quarter of 2017 pending regulatory and shareholder approval, may give the combined companies greater bargaining power against retail home improvement giants such as Home Depot (HD) and Lowe's (LOW).
In a Real Money post released on Monday, Jim Cramer pointed out that Valspar reported a sales shortfall in February and that it had been losing business at Lowe's to Sherwin-Williams.
"This [deal] is also a reaction to the Home Depot and Lowe's being tough on the paint companies," Cramer said in an email. "They have been pitted against each other for ages."
The combined companies are expected to have pro-forma adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.8 billion on $15.6 billion in revenue. Additionally, the deal is expected to allow Sherwin-Williams to accelerate its global growth.
"We are confident this transaction will create opportunities to accelerate many of the operating initiatives already underway at Valspar," Valspar CEO Gary Hendrickson said in a statement. "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."