Paint and coatings manufacturer Valspar Corporation (VAL) is expanding in the Asia-Pacific region by acquiring the Australian paint manufacturer Wattyl Limited. Wattyl is a market leader in paint and surface coatings business with manufacturing, sales and distribution operations in Australia and New Zealand.
Valspar has agreed to acquire Wattyl for A$142 million ($124 million) or A$1.67 ($1.46) per share in cash, up from the prior offer of A$1.30 per share ($1.14) on May 25, 2010, and take over its existing debt. The deal is subject to approval by shareholders and regulatory authorities.
Minneapolis-based Valspar is the sixth largest paint and coatings manufacturer globally, its manufacturing footprint spanning across the U.S., Europe and Asia. It makes coatings for the global industrial, packaging and architectural markets. Valspar’s fastest-growing markets are the emerging economies such as China, Latin America and Eastern Europe. The company’s powder coatings plant in Shanghai and an 80% stake in Huarun Paints, a coating company, are ideal growth platforms to leverage China’s strong demand for paints and coatings.
In Latin America, Valspar is a market leader for coatings in packaging and coil markets. The acquisition of the coil coatings business of Tekno S.A. in Brazil has accelerated Valspar’s growth. Globally, the company has a strong position in packaging coatings, and the acquisition of Minnesota-based H.B. Fuller Co. is expanding opportunities for powder coating sales growth.
The acquisition of Aries Coil Coatings S.A. de C.V. in Mexico, a market leading manufacturer of high-performance coatings for both coil and packaging markets, will strengthen Valspar’s international presence and consolidate its position in the coil and packaging coating markets in the U.S.
Valspar’s solid results and robust margin gains in the past few quarters stem from dramatic cost reductions increasing product prices and gains in productivity. We expect the earnings momentum to continue for the next few quarters, driven by volume increases in both the Paint and Coatings segment. We expect feedstock cost relief to fuel margin expansion for the Coatings business.
Furthermore, Valspar’s restructuring efforts have resulted in significant cost synergies. Following a strong first quarter of 2010, the company has increased its earnings guidance to reflect the benefit of recovery in demand. We remain “Outperform” on Valspar, supported by the Zacks short-term (1 to 3 months) Rank of #1 (Strong Buy).
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