PPG Paints Over Sherwin-Williams Failure

Months after Sherwin-Williams (NYSE: SHW  ) failed in its quest to buy Mexican paint giant Comex because regulators feared it would have too much control over the market, rival PPG Industries (NYSE: PPG  ) announced last week it was acquiring the coatings specialist south of the border -- and paying roughly the same amount of money previously offered.

Consorcio Comex SA is Mexico's largest paint and coatings specialist with 3,600 paint stores operated by concessionaires, or franchises, making it second in size in the region only to Sherwin-Williams itself, which has over 3,900 stores. It was the better than 50% market share the two industry giants would command that worried Mexico's Federal Economic Competition Commission, because it would make the combined company more than 10 times larger than its nearest competitor.

Although Sherwin-Williams did get a consolation prize by acquiring Comex's U.S. and Canadian operations for $90 million cash and the assumption of $75 million worth of debt, the real jewel was the Mexican business, and PPG doesn't believe it will face the same kind of concerns that its rival did because its business is focused more on automotive coatings rather than in household paints or those used in construction activities. 

Yet Comex will still coat PPG's operations with plenty of growth. The Mexican painter generates approximately $1 billion annually in revenues that will more than double PPG's Latin America division sales to 11% of its total sales from the current 5%. 

The Latin America region is growing in importance every year to the global-coatings market, comprising 14% of DuPont's  (NYSE: DD  )  global paint and coatings sales of $5.3 billion, 13% at RPM  (NYSE: RPM  ) , and 11% at AkzoNobel  (NASDAQOTH: AKZOY  ) .

PPG, however, has been on a buying spree. It closed on its purchase of architectural coatings maker The Homax Group just days after announcing the Comex deal. Last year it purchased Akzo Nobel's North American architectural coatings business, Deft's specialty coatings business, and in March of this year bought Hi-Temp Coatings Technology's protective and marine coatings business. PPG's first quarter earnings report showed revenues surged 17% from the year ago period largely due to acquisitions its made in the past year.

Although some analysts think it will run into trouble with Mexican regulators, PPG was seen as the natural successor to bid on Comex after Sherwin-Williams' acquisition attempt fell apart, estimating at the time it would add as much as $0.80 per share to its earnings. PPG itself hasn't disclosed how Comex will benefit its bottom line, but finds Comex's business "very complementary" to its own, and says it will finance the deal with a combination of cash and short-term investments, but may also fund a portion of the purchase price through the addition of debt. The coatings specialist reported it had $3 billion of cash and investments on hand at the end of March.

PPG still has to confront a mixed European market as last quarter volumes there overall improved by 4% but were decidedly mixed based on region and country. Still the Comex deal strengthens its Latin America business and makes it a tougher adversary for Sherwin-Williams to confront. That is, if it makes it through the regulatory process. PPG's rival also thought it would be easy to navigate but quickly learned that Mexico is intent on protecting its smaller shops. 

Outsized dominance might not be a factor, but it's a concern that PPG Industries can't whitewash until it receives the stamp of approval.

Paint it black: This coming device has every company salivating
The best investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we buy goods, but potentially how we interact with the companies we love on a daily basis. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns, you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3020064, ~/Articles/ArticleHandler.aspx, 9/2/2015 12:30:53 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated 3 hours ago Sponsored by:
DOW 16,058.35 -469.68 -2.84%
S&P 500 1,913.85 -58.33 -2.96%
NASD 4,636.11 -140.40 -2.94%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 4:03 PM
SHW $248.53 Down -7.28 -2.85%
Sherwin-Williams CAPS Rating: ****
AKZOY $22.00 Down -0.48 -2.14%
Akzo Nobel N.V. (A… CAPS Rating: No stars
DD $50.02 Down -1.48 -2.87%
E.I. du Pont de Ne… CAPS Rating: ****
PPG $91.35 Down -3.94 -4.13%
PPG Industries, In… CAPS Rating: *****
RPM $42.49 Down -1.36 -3.10%
RPM International CAPS Rating: *****