Fitch: Sherwin-Williams' Ratings Unaffected by Termination of Purchase Agreement for Comex Mexico

CHICAGO--(BUSINESS WIRE)--

Fitch expects the ratings for The Sherwin-Williams Company SHW, including the company's Issuer Default Rating (IDR) of 'A-', will be unaffected by the company's decision to terminate the amended and restated stock purchase agreement (dated Sept. 16, 2013) to acquire the Mexico business of Consorcio Comex, S.A. de C.V. (Comex).

Fitch will reassess SHW's ratings in the coming month, including the company's projected use of its excess cash and cash flow as well as potential deleveraging strategy following the termination of the purchase agreement.

COMEX ACQUISITION

In November 2012, SHW announced the proposed acquisition of Comex for $2.34 billion. Comex is a privately held business with operations in Latin America, the U.S. and Canada. In 2011, Comex had $1.4 billion in sales, 66% of which was generated in Mexico and the remaining 34% in the U.S. and Canada.

On July 17, 2013, the Federal Competition Commission of Mexico (FCCM) informed SHW that the acquisition was not authorized by the FCCM by a 3-2 vote of its members. Shortly thereafter, SHW appealed the FCCM's decision.

In September 2013, SHW completed the acquisition of the U.S./Canada business of Comex for $90 million in cash and the assumption of liabilities valued at approximately $75 million. In Sept. 2013, the stock purchase agreement was also amended and restated to extend the exclusivity period to March 31, 2014. Additionally, the agreement was amended to reflect a revised purchase price of $2.25 billion to account for the completion of the acquisition of the U.S./Canada business.

In October 2013, the FCCM informed SHW that the company's appeal relating to the pending acquisition of the Mexico business of Comex was denied and the acquisition was not authorized.

In March 2014, SHW met with the FCCM in Mexico to discuss the company's ongoing effort to acquire the Comex business in Mexico. The purpose of the meeting was to discuss various issues relating to potential remedies required by the FCCM as a condition of regulatory approval of the transaction.

TERMINATION OF STOCK PURCHASE AGREEMENT

On April 1, 2014, the company was notified by Comex management of its belief that SHW breached its obligations to use commercially reasonable efforts to acquire the Mexico business.

On April 3, 2014, SHW filed a complaint for a declaratory judgment in the Supreme Court of the State of New York requesting the court to declare that SHW has used commercially reasonable efforts as required under the stock purchase agreement and has not breached the agreement.

On April 4, 2014, SHW sent notice to the sellers terminating the amended and restated stock purchase agreement to acquire the Mexico business of Comex.

PREVIOUS RATING ACTIONS

In May 2013, Fitch downgraded SHW's ratings, including the company's Issuer Default Rating (IDR), to 'A-' from 'A'. The downgrade primarily reflected Fitch's view of SHW's high leverage following the acquisition of Comex (U.S./Canada as well as operations in Mexico) and integration risks associated with this large transaction and took into account normalized leverage post integration.

SHW pre-funded part of the acquisition cost by issuing $1 billion of senior unsecured notes ($700 million 1.35% senior notes due 2017 and $300 million 4% senior notes due 2042) in December 2012. As a result, SHW had cash of $744.9 million and total debt of $1.72 billion as of Dec. 31, 2013. The company has $500 million of debt coming due in December 2014.

The company ended 2013 with leverage (Debt to EBITDA) of 1.2x and lease-adjusted leverage of 2.5x. Coverage ratios remained solid, with EBITDA to interest of 22.2x and FFO fixed charge coverage of 3.6x during 2013. These credit metrics remain appropriate for the current ratings.

Fitch currently rates SHW with a Stable Outlook as follows:

--Long-term IDR 'A-';

--Senior unsecured notes 'A-';

--Unsecured bank credit facilities 'A-';

--Short-term IDR 'F2';

--Commercial Paper 'F2'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).

Applicable Criteria and Related Research:

Corporate Rating Methodology -- Effective 12 August 2011 to 8 August 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Liquidity Considerations for Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

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