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Sherwin-Williams to Buy Mexican Paint Producer Comex (Correct)

Sherwin-Williams Co., the largest U.S. paint retailer, agreed to acquire closely held paint maker Consorcio Comex SA de CV for about $2.34 billion including debt to expand in Mexico as housing demand improves. The shares rose the most in more than a year.

The all-cash deal is subject to regulatory approvals, Cleveland-based Sherwin-Williams (NYSE: SHW) said today in a statement. The acquisition would be the biggest takeover in Mexico by a U.S. company since 2004, according to data compiled by Bloomberg.

Sherwin-Williams Chairman and Chief Executive Officer Christopher M. Connor is adding to the company’s 3,500 North American stores after an improving housing market led to record earnings in the third quarter. Comex has 3,300 points of sale in Mexico, almost 1,600 in Canada and operates 240 stores in the United States. Comex generated two-thirds of its $1.4 billion of revenue last year in Latin America, Sherwin-Williams said in a presentation on its website. It didn’t disclose Comex earnings.

“While the financial details remain unclear, we view the deal as strategically accretive to the Sherwin-Williams franchise as it extends the company’s already impressive distribution network to Mexico and Latin America,” Ghansham Panjabi, a New York-based analyst at Robert W. Baird & Co. who rates the shares neutral, or the equivalent of hold, said in a report today.

Sherwin-Williams rose 6.4 percent to $149.79 at 11:34 a.m in New York, the most intraday since Sept. 26, 2011.

Latin America

Comex has more than 7,200 employees and it operates eight factories in Mexico, five in the United States and three in Canada, according to the statement. It’s the largest paint maker in Mexico, according to Jorge Quintana, an executive with Fleishman-Hillard, Comex’s public relations agency. The acquisition of the Mexico City-based company will double Sherwin-Williams sales in Latin America, the company said.

“This transaction will significantly increase our presence in markets where our store count is low,” Connor said in the statement. “It builds upon our strategy to grow our architectural paint business in the Americas.”

Pretax profit in the Latin America segment rose 4 percent to $51.1 million in the first nine months of the year even as sales fell 0.6 percent to $604.6 million, Sherwin-Williams said Oct. 25. Total company net income has increased 32 percent this year to a record $563 million, or $5.37 a share, as sales from U.S. paint stores climbed.

U.S. sales of new homes rose to an annual pace of 389,000 in September, the highest since April 2010, the Commerce Department reported on Oct. 24. Housing starts surged 15 percent in September to an annual pace of 872,000, the fastest pace since July 2008.

Sales Volumes

Latin American sales volumes will continue to improve in the fourth quarter, widening profit margins, Chief Financial Officer Sean P. Hennessy said on an Oct. 25 conference call.

Sherwin-Williams plans to fund the transaction with $2 billion of borrowings in 5-, 10- and 30-year tranches, the company said in the presentation. Debt will triple to three times earnings before interest, taxes, depreciation and amortization, the company said. Debt should drop to 1.25 times Ebitda by 2018, according to the presentation.

Sherwin-Williams said it plans to reduce stock buybacks for the next two years while maintaining its dividend payout.

Jones Day was Sherwin-Williams legal adviser on the transaction. HSBC Holdings Plc advised Comex.

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