TheStreet's Jim Cramer discusses Sherwin-Williams' acquisition of paint company Valspar in the video above.
NEW YORK (TheStreet) -- Shares of Sherwin-Williams Co. (SHW - Get Report) are falling 5.21% to $273.64 on heavy trading volume on Monday afternoon as it will buy paint company Valspar Corp. (VAL) in an $11.3 billion transaction.
In an agreement announced yesterday, Cleveland, OH-based Sherwin-Williams will pay $113 per share in cash for Valspar, which represents a 35% premium to the Minneapolis-based company's closing price on Friday, Deutsche Bank analysts said.
"Given the small universe of paint companies and Valspar's long-term status as an acquisition target, we suspect all major coatings companies were involved in the acquisition process and that Sherwin was the highest bid," the firm said in an analyst note.
Annual synergies are expected to be about $320 million within two years after closing, according to Sherwin-Williams CEO John Morikis.
"Valspar is an excellent strategic fit with Sherwin-Williams. The combination expands our brand portfolio and customer relationships in North America, significantly strengthens our Global Finishes business, and extends our capabilities into new geographies and applications, including a scale platform to grow in Asia-Pacific and EMEA," Morikis said in a statement.
The transaction is expected to close by the end of the 2017 first quarter and is subject to approval from shareholders and regulators.
TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts Plus charitable trust, commented on the deal in a RealMoney article this morning: "The deal's a shocker. Valspar had been hurting of late. It reported a sales shortfall in February that sent the stock down 2%, and it had been losing Lowe's (LOW) business to none other than Sherwin Williams."
"The declining percentage of business to Lowe's clipped Valspar for $150 to $180 million. A stronger dollar had also been crimping earnings," Cramer added.
About 3.05 million of Sherwin-Williams' shares were traded by this afternoon vs. its average volume of 822,043 shares per day.
Shares of Valspar are surging 24.06% to $104 Monday afternoon on heavy trading volume.
About 9.7 million of the company's shares traded hands so far today, well above its average volume of 748,762 shares per day.
Separately, TheStreet Ratings Team has a "Buy" rating with a score of A- on the stock.
This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks rated.
The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations.
The team believes its strengths outweigh the fact that the company has had generally high debt management risk by most measures that were evaluated.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
You can view the full analysis from the report here: SHW