Sherwin-Williams to buy firm Forstmann Little & Co. to sell Thompson Minwax in $830 million deal


CLEVELAND -- Sherwin-Williams Co. said yesterday it will buy Thompson Minwax Holding Corp. from Forstmann Little & Co. for $830 million in cash, giving the largest maker of paints such as Dutch Boy the lead in household stains and sealers.

The addition of Thompson water sealers, Minwax stains and Red Devil and Formby's products fills a weak spot in Sherwin-Williams' lineup that includes Krylon, Ralph Lauren and Pratt & Lambert paints and varnishes.

The purchase is easily the largest of the 21 companies Sherwin-Williams has bought since 1990 as it expanded into related products as well as other parts in the world.

"It's the same basic technology and the same basic product," said Robert Curran, an analyst with Merrill Lynch & Co. "It's a very clear and obvious combination."

Shares in Cleveland-based Sherwin-Williams fell 88 cents to $55.88 in trading of 294,700, double the three-month daily average of 134,500. The stock has jumped 41 percent in a year.

The sale also represents a good payday for Forstmann Little. The closely held New York investment firm bought Thompson Minwax from Eastman Kodak Co. in 1994 for $700 million.

Sherwin-Williams expressed an interest in buying Thompson Minwax two years ago, Curran said, but couldn't muster a bid in time.

Thompson Minwax, based in Upper Saddle River, N.J., has annual sales of about $375 million.

Sherwin-Williams, which also operates about 2,000 paint and wallpaper stores, had sales of $3.3 billion last year.

The purchase is twice the size of Sherwin-Williams' other large acquisition, the $400 million buyout of paint maker Pratt & Lambert in January.

Sherwin-Williams will borrow the full amount of the purchase from its lines of credit, adding to its $350 million in debt.

Standard & Poor's Corp., citing the new added debt, placed Sherwin-Williams' debt on Credit-Watch with negative implications. It rates the company's senior unsecured debt A+ and commercial paper A-1.

Sherwin-Williams' acquisitions -- including the 12 so far this year -- are part of an aggressive effort to take advantage of consolidation in the paint and coatings industry, said Jeffrey Zekauskas, an analyst with Schroder Wertheim & Co.

No. 2 PPG Industries Inc., for example, purchased Olympic stains, the biggest competitor to Thompson Minwax, in 1989.

Sherwin-Williams has roughly 15 percent of the $15 billion U.S. paint and coatings business, largely through sales at its own stores and at mass merchandisers such as Sears, Roebuck & Co. and Wal-Mart Stores Inc.

The purchase "will provide our customers with a broader product assortment and complement the distribution of our current branded coatings products to paint stores, independent dealers, home centers and mass merchandisers," said John Breen, chief executive at Sherwin-Williams.

The company's management has said it wants to control 20 percent of the U.S. market.

Making big acquisitions to build that share makes sense, said analysts, since the U.S. market for paints and coatings is growing slowly.

"The list of candidates for something of this magnitude has shrunk and shrunk," said Justin Maurer, an analyst with McDonald & Co.

He said the acquisition will hurt Sherwin-Williams's earnings in the short term, unless the Thompson Minwax division can post $80 million in profit this year.

"There's no question this is a long-term play," he said.

Pub Date: 11/23/96

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