Shares of coatings giant
) shot up to a new high after it agreed to buy Mexico's leading
paint company - Consorcio Comex S.A. de C.V. - for $2.3 billion to
reinforce its architectural coatings business in Mexico and Central
America. The acquisition is subject to regulatory clearances and
other closing conditions.
Privately-held Comex, which had revenues of roughly $1 billion last
year, makes architectural and industrial coatings and related
products in Mexico. The company has 8 manufacturing facilities and
6 distribution centers and markets its products through around
3,600 stores in Mexico and Central America.
PPG Industries' shares climbed as much as 4.4% in the trading
session following the announcement to strike a new 52-week high of
$213.01 yesterday. The stock pulled back to eventually close the
day at $210.15, gaining around 3%.
The deal comes after U.S. paint major
) ended its pursuit of Comex's Mexican business in Apr 2014.
Sherwin-Williams, in Nov 2012, agreed to buy Comex for roughly
$2.34 billion. The company, in Sep 2013, completed the acquisition
of the U.S. and Canadian businesses of Comex.
However, Sherwin-Williams' appeal related to the acquisition of
Comex's core Mexican business was denied and the acquisition was
declared unauthorized by the Federal Economic Competition
Commission ("FECC") in Mexico in Nov 2013. Prior to that, the
Mexican antitrust regulator rejected the deal in Jul 2013 citing
that the merger would allow the combined company to set
artificially high prices and commit anti-competitive practices,
thereby damaging consumer interests.
Under the terms of the stock purchase agreement, either
Sherwin-Williams or Comex had the right to end the deal if it did
not consummate on or before Mar 31, 2014. Comex, however, accused
Sherwin-Williams for breaching its obligations under the agreement
by not using commercially reasonable efforts to close the deal.
The acquisition is a strategic fit and highly complementary to PPG
Industries as it will boost its foothold in Mexico and Central
America by offering a leading architectural coatings portfolio. The
deal is in sync with the company's strategy to broaden its global
PPG Industries expects the transaction to be immediately accretive
to its earnings, barring acquisition costs. It also expects to
achieve acquisition-related synergies of 3%-4% of acquired sales
over two years.
While PPG Industries plans to finance the deal with its existing
cash and short-term investments (of $3 billion as of Mar 31, 2014),
it may fund a part of the purchase consideration by raising debt.
PPG Industries is taking steps to grow its business inorganically
by making a bevy of acquisitions. The acquisition of
) North American architectural coatings business, in Apr 2013, has
bolstered its branded paint product offerings and scale in the
North American architectural paint market.
Moreover, PPG Industries acquired specific assets of specialty
coatings company Deft Incorporated last year in an effort to boost
its position in the aerospace industry. The acquisition of Hi-Temp
Coatings Technology, in Mar 2014, also strengthens PPG Industries'
protective and marine coatings business. More recently, the company
bought Panama-based Canal Supplies, which will help it to expand
its protective and marine coatings business in Central America.
PPG Industries is a Zacks Rank #3 (Hold) stock.
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), sporting a Zacks Rank #2 (Buy).
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