Sherwin Williams-Valspar Merger Conference Call: Full Transcript

Ticker: SHW Company: The Sherwin-Williams Company Event Name: The Sherwin-Williams Company To Acquire Valspar Event Date: Mar 21,2016 Event Time: 08:00 AM ET Operator: Good morning. Thank you for joining Sherwin-Williams review of its transaction with Valspar. This conference call is being webcast simultaneously in listen-only mode by Issuer Direct via the Internet at www.Sherwin-Williams.com. An archived replay of this webcast will be available at www.sherwin-williams.com beginning approximately two hours after this conference call concludes and will be available until April 8, 2016, at 11:59 pm Eastern Time. Following the Company's review, we will conduct a question-and-answer session. I will now turn the call over to Bob Wells, Senior Vice President, Corporate Communications and Public Affairs. Please go ahead, Sir. Bob Wells: Senior Vice President of Corporate Communications and Public Affairs: Thank you Jesse. Good morning, everyone, and thanks for joining us. As we said in our press release, the presentation for this call is posted on our Investor Relations page of our website at sherwin-williams.com and on the Investor Relations page of Valspar's website at valspar.com. This conference call will include certain forward-looking statements as defined under US securities laws with respect to Sherwin-Williams' agreement to acquire Valspar. Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to update or revise any forward-looking statement whether as a result of new information, future events, or otherwise. A full declaration regarding forward-looking statements is provided in the Company's press release transmitted at 1 pm Eastern Daylight Time yesterday. With us on the call this morning are John Morikis, President and Chief Executive Officer of Sherwin-Williams, Gary Hendrickson, Chairman and Chief Executive Officer of Valspar, and Sean Hennessy, Chief Financial Officer of Sherwin-Williams. It's now my pleasure to turn the call over to John Morikis. John G. Morikis: President, Chief Executive Officer, Director: Thank you Bob and good morning everyone. I'm pleased to be able to speak to you this morning about the transformational transaction with Valspar we announced yesterday, one that we believe will drive significant value creation for shareholders and offer compelling benefits for our customers, employees and business partners. First, I would like to thank Gary Hendrickson, Chairman and Chief Executive Officer of Valspar for being here with us today. In a moment, he will share his thoughts. Now let me start by telling you why I'm so excited about the potential of bringing together our two highly complementary organizations. This combination will create a premier global paints and coatings company with a comprehensive product portfolio and broad global reach. This is a highly complementary transaction that brings new capabilities and greater geographic reach to Sherwin-Williams. It accelerates our growth strategies and enables us to deliver a broad range of products to more customers. Valspar will expand Sherwin-Williams capabilities into their highly attractive packaging and coil segments and we will also gain a global platform to broaden and grow our business throughout Asia-Pacific and EMEA. This combination will drive significant benefits to all of our stakeholders, including our customers who'll benefit from our increased product range, enhanced technology, and innovative capabilities and the transaction's clearly defined cost synergies. We expect this transaction to be immediately EPS accretive, excluding one-time costs and annual run rate synergies of $280 million will be realized in the second year. Taken together, we believe this is an extremely compelling, strategic and financial combination that will create meaningful value for our shareholders. I'd now like to turn the call over to Gary to say a few words. Gary E. Hendrickson: Chairman and Chief Executive Officer of Valspar: Thank you, John. I would like to echo John's comments about what a perfect fit these two companies are. In agreeing to this transaction, our Board very carefully reviewed our strategic options and we determined that this is a best way to maximize value for our shareholders as well as providing significant opportunities to our employees and value to our customers. This transaction delivers on all counts for Valspar, our shareholders, customers and employees. Our shareholders will receive significant and immediate value in the form of a 41% premium in reference to Valspar's 30-day average price. Our customers will enjoy access to a greater breadth of product, technologies and global scale and scope. Our employees will have greater opportunities as part of a larger, dynamic and diversified company that is better able to meet our customers' needs around the world. And our other partners will benefit from a stronger business and deeper relationships. Importantly, having worked with John and his team over the past few weeks, I know that Sherwin-Williams and Valspar share the same cultural values and commitment to customers, innovation, and product excellence. In sum, this is a tremendous opportunities for Valspar to join with Sherwin-Williams and create a truly global and first class company and we look forward to working with Sherwin-Williams to ensure its success. With that, I will turn the call back over to John. John G. Morikis: Thank you, Gary and thank you again for joining us on this call today. Turning to slide 2, I want to provide a bit more detail as to why we believe this is such a compelling combination. New businesses; first, the combination expands our brand portfolio and customer relationships, significantly expands our global finishes businesses and extends our capabilities into new geographies and applications, including a scale platform to grow in Asia-Pacific. We've long admired Valspar's position across Asia-Pacific and EMEA, where we have a limited presence. This transaction provides us with an opportunity to realize immediate scale and allows us to provide customers with a greater set of products, accelerating our growth in these key markets. We've similarly admired Valspar's capabilities in packaging and coil, two areas where Valspar is rightly considered an industry leader. We look forward to continuing to invest and grow these businesses. Our customers will benefit from a broader portfolio of well-known brands and high quality products that will be available in more places. We're excited by the fact that the combined company will be well-positioned to continue to develop high quality products across the paints and coatings spectrum. Sharing best practices and proprietary technologies will allow us to together significantly accelerate product innovation. Importantly, customers will see the benefits of these synergies resulting from this combination. Shareholders in Sherwin-Williams will realize compelling financial benefits. As I mentioned, the cost synergies are significant and we expect to realize the full run rate of $280 million in the second full year. We expect this transaction to be immediately EPS accretive, excluding one-time costs which will further drive shareholder value. This transaction is supported by an attractive financing package, which allows Sherwin-Williams to benefit from its strong balance sheet and low cost of capital. The combined company's increased scale, improved top line and earnings growth profile, and realization of cost energies will significantly enhance our ability to generate cash. As a result, we anticipate that we'll be able to rapidly de-lever our balance sheet in the first several years post-closing. Valspar's shareholders are receiving an immediate and significant premium in an all-cash offer that provides certainty of value, which at $113 per share is 18% of Valspar's all-time high. Now turning to slide 3. Valspar is a tremendous company with a long history of quality and innovation, is a major part of the Minneapolis area and we intend to maintain a significant presence there. They have over 11,000 employees across six continents. They have grown steadily over the recent years and we look forward to continuing that trajectory. I want to pause here and make something explicitly clear. We do not buy companies to dismantle them. Valspar has a really talented workforce and they are a huge component of making this transaction a success. I will get into this in a bit more detail later, but I want to say on behalf of Sherwin-Williams how excited we are to welcome Valspar into our family. Slide 4 provides a bit more detail on Valspar's business and for those of you that know Sherwin-Williams' business well, really illustrates why this is such a great fit. This is a snapshot of Valspar's reporting segments which are broken into coatings and paints. On the left in purple is the larger coatings business. Right now you'll notice the packaging and coil lines, which together represent over 50% of their business. Valspar is highly regarded in the industry for its differentiated offerings in these segments and they will be meaningful contributors to the combined company. Moving over to the right side, in blue, is a breakdown of Valspar's paint business. As you can see, not only do they have a complementary presence to ours in North America with a great set of brands, they have developed significant scale across the globe. Clearly, Valspar has invested heavily and worked hard and their capital and time have borne significant results. Valspar will provide Sherwin-Williams with additional research and development capabilities and an opportunity to cross-sell Sherwin-Williams' products to Valspar customers as well. This also means that we will be able to accelerate our global expansion far more rapidly than we could have done alone. Moving to Slide 5. This gives you a good idea of the scale of the combined company. As you can see, this is a global industry that remains heavily fragmented with an incredibly diverse collection of firms. Turning to Slide 6, on the left you can see Sherwin-Williams revenues are driven primarily from its paint stores, which represents roughly 60% of total revenues. On the right is a snapshot of the combined company. You will note that not only are the revenues far more diversified across segments, but the average profitability of the business increases to roughly 18.6% including synergies. What this transaction does is create a more resilient and diversified business with greater earnings power, a really compiling combination. Slide 7 shows a geographic revenue breakdown of Sherwin-Williams before and after the transaction. This transaction will also better align Sherwin-Williams with the global paints and coatings industry, increasing our international revenues from 16% to 24% of our business. This is especially important given the chart on the right, 81% of the $120 billion global paints and coatings business lies outside North America. Due to Valspar's impressive platforms in Asia-Pacific and EMEA and their talented professionals, we will have a greater ability to accelerate our strategy. Slide 8 provides some greater detail on what I've been referring to as a strengthened portfolio. As you can see on the top, Valspar has a number of leading brands across both paints and coatings that are complementary to the Sherwin-Williams' brand portfolio at the bottom of the slide. They have continuously proven themselves to be an innovator, bringing to market a number of unique technologies. Few examples shown here, informed by their expertise in resins and internal manufacturing. We are extremely excited about bringing together the technologies' strengths and respected brands of these two companies. Now that we've covered many strategic benefits, I want to take a moment to explain why we see this transaction as so financially compelling. Slide 9 illustrates the significant cost synergies we will deliver through this combination. Importantly, this transaction is about growth and I think the fact that the majority of our synergies are derived simply from input and manufacturing costs illustrate that point. We've a long history of successfully integrating our positions and realizing synergies and we have established a clear path to realize these savings. Our integration strategy is already moving forward, including planning for an integration committee made up of representatives of both companies. The $200 million is our annual run rate which we plan on achieving by the second year. A majority of the cost to realize these synergies will be incurred in year one, which will allow us to shift our focus quickly from execution to growth. Slide 10 clearly illustrates the increased scale of the combined company. Incremental sales will increase the top line of pro forma 2015 Sherwin-Williams to $15.6 billion. On the right, you'll see that including synergies, 2015 Sherwin-Williams pro forma would generate $2.8 billion in EBITDA. To mention again that we expect this transaction to be accretive to Sherwin-Williams EPS, making this transaction very attractive for Sherwin-Williams shareholders. We believe the combination of the company's increased scale, significant synergies and immediate accretion will create significant shareholders value. I would now like to turn the call over to Sean Hennessy, Chief Financial Officer of Sherwin-Williams to provide a bit more detail on the transaction itself. Sean P. Hennessy: Senior Vice President - Finance and Chief Financial Officer: Thank you, John. Slide 11, merger consideration provides an overview of the merger. As noted previously, the transaction at $113 per share represents a 41% premium in reference to Valspar's 30-day average price and an 18% premium to Valspar's all-time high. Excluding synergies, we are offering a 15 times EBITDA multiple for Valspar or a 10.9 times EBITDA multiple with $280 million of run rate synergies included. I would now like to provide a bit more detail on the pricing mechanism you saw announced in the release yesterday. Let me be clear both sides believe that the transaction should receive all necessary regulatory approval. We believe that we operate in a competitive global industry and this combination will benefit our customers. We expect that no or minimal divestiture should be required to obtain regulatory clearance. That said, although we believe that the significant divestitures are not likely, as we started to negotiate this transaction, it was important to both sides to put a mechanism in place that will provide greater certainty of close, while ensuring that Valspar and Sherwin-Williams shareholders were treated fairly. In the event that required divestitures represent more than $650 million of Valspar's revenue, the parties have agreed to adjust the price to $105 in cash, which still provides Valspar shareholders with a 31% premium to Valspar's thirty-day VWAP. We expect the transaction to be closed by quarter one of calendar year 2017, which is subject to an affirmative vote by Valspar shareholders and regulatory approvals. Slide 12 provides another illustration why we find this transaction so financially compelling. We have secured a fully committed bridge loan from Citi for $9.3 billion. About balance sheet, we expect our permanent financing to be at attractive rates. We anticipate that the term loan and bonds will comprise our permanent financing. At closing, we also anticipate to have more than $1.5 billion of liquidity remaining. Sherwin-Williams committed to maintaining an investment grade rating. Post-close, we believe that we will have an -- be in an excellent position to rapidly de-leverage. This is a result of not only our strong earnings and free cash flow, but also near-term CapEx savings. We will be monetizing our share repurchases activity to focus on de-leveraging. I'll now turn it back to John. John G. Morikis: Thank you Sean. In summary, we're thrilled about this transaction and all the opportunities it provides our stakeholders. Together, these companies will be a premier provider with platforms for accelerated growth in new products and markets. The transaction is also financially compelling and will allow for significant cost savings, rapid de-leveraging. Sherwin-Williams and Valspar will deliver to all of their stakeholders significantly greater value than they could alone. Customers, employees, partners and shareholders will all benefit from this exciting combination. I'll finish by adding my compliments to Gary and his team who have done a tremendous job creating value at Valspar. We are eager to welcome this talented Valspar team to our team and look forward to continuing to grow our business together. I will now turn the call back over to the operator for your questions. Question & Answer Operator: Thank you. [Operator Instructions] Our first question is coming from the line of Duffy Fischer with Barclays. Please proceed with your question. Duffy Fischer: Barclays: Yes. Good morning and congratulations fellows. John G. Morikis: Thanks, Duffy. Duffy Fischer: Question around the synergies, it's 6% to 7% of revenue of Valspar on the higher end of kind of the going in synergies we have seen kind of in the industry and certainly in the coatings; what makes Valspar so unique that their above average synergies to be have there? Sean P. Hennessy: I think that, you take a look at the combination of the manufacturing side, the raw material side, the resin capabilities they have, I think that's where we think that it's going to provide the synergy for the -- and the above average synergies. Duffy Fischer: Okay. And then when the deal comes together, one, it looks like the debt number you are using in the print is kind of based on the last reported for Valspar, but theoretically they should generate a couple of hundred million dollars throughout this year to next year. How does that play in the calculation if we do close Q1 of next year? And then what would the target be to get the net debt to EBITDA ratio down once it's closed before you kind of go back to your normal share repo position? Sean P. Hennessy: All right. If you take a look at the $11.3 billion, we are going to assume the $2 billion, approximately $2 billion, $2.046 billion, but if you think about $2 billion from the debt that we'll assume, it takes down to 93. We think between the cash generation of our company as well as Valspar at close in their first quarter, we should have approximately $1 billion of cash, net of one-time expenses and closing costs, and so that takes it down to 8.3, we believe $8.3 billion will be our financing for this deal. Duffy Fischer: Great. Thanks fellows. John G. Morikis: Thank you Duffy. Sean P. Hennessy: I am sorry, and Duffy, back to your point again, I think a very important point here. You're right, shareholder -- share repurchases, in the last three years, we've actually spent $3.3 billion; last four years close to $4 billion we've spent on share repurchase. Over the next three to four years, that will average between $50 million and $75 million a year. So over the next three years, close to $200 million with that kind of pace, we believe that by 2019, we will be down close to 2 times EBITDA. Duffy Fischer: Great. Thank you. John G. Morikis: Thank you. Operator: Thank you. Our next question is coming from the line of Don Carson with Susquehanna Financial. Please continue with your question. Don Carson: Susquehanna Financial: Ye, back to the synergies, I mean, the synergies you've identified are principally costs. Two questions. One, John, you referred to cross-selling in some Valspar products this year what system in place versus what kind of ultimate benefit you see there from a mix standpoint? And secondly, historically you've gotten a lot of leverage on consolidating manufacturing when you have done acquisitions. Do you see a similar opportunity here that would be above and beyond the additional synergies you've identified? John G. Morikis: Yes, so if you just take in mind our guidance in the past on our consumer business, for example, we've spoken about that business being a flat to single digit growth business. We do believe the combined brands and other products that our consumer business sell for example, creates an opportunity for growth. We'd like to see that business grow into the middle single digit range. Regarding the SG&A side, I think we've demonstrated just coming off of our Comex integration that we've got confidence in our ability to get our cost in line and we do feel as though we will be able to attack those and get those synergies and do that quickly. Don Carson: Thanks you. John G. Morikis: Thanks Don. Operator: Thank you. Our next question is coming from line of P.J. Juvekar with Citi. Please proceed with your question. P.J. Juvekar: Citi Good morning, John. John G. Morikis: Good morning. P.J. Juvekar: This is your first time getting into new markets like China where the market is fragmented and labor is cheaper. How does that fit into your model and what are your plans to grow there? John G. Morikis: So, I'll remind you that the business that we're acquiring here is a very profitable business. If you look at the opportunity in Asia and Valspar's strong position there, in total, not just in Asia, but in total, their coatings margins are 20%, 20.1%, which are really in line with our stores group margins of 20%. So that creates an opportunity for us to grow there and grow profitability. It does create the opportunity on the architectural side with the Valron (ph) brand on that they have done and done very well. And so they create those opportunities for us to capitalize on. P.J. Juvekar: Thank you. And you said in packaging and coil, you want to grow these businesses. Can you elaborate on that and what kind of capital do you need for that? Thank you. John G. Morikis: Well, these are new complementary businesses for us and our role there be to support this wonderful team that will be joining ours and make sure they have the resources they need to be able to continue to grow. Our opportunity there will be to support them. Sean P. Hennessy: On the capital side, if you look at our CapEx for many years, we've been running at about 1.5% of sales. It's been higher the last few years. We think that for the short term, it will be slightly higher than that, but by again 2019-20, I think that our CapEx run rate will be about 1.6% of sales. So, still with this core business at Sherwin-Williams plus this, we thinks that CapEx will just marginally increase. Working capital, which we've been running around 10% of sales, we think that together will be around just slightly about 12. But eventually it will be down at 11. So, we think from what this investment take, we are going to be probably a point higher in working capital and a tenth of percent of sales higher in CapEx. P.J. Juvekar: Thank you. John G. Morikis: Thanks P.J. Operator: Thank you. Our next question is coming from the line of David Begleiter with Deutsche Bank. Please proceed with your question. Jermaine Brown: Deutsche Bank: Hi. Good morning. This is actually Jermaine Brown filling in for David Begleiter. John, Gary in terms of your goal or milestone rather of 5,000 new stores, has changed in any way following this announcement? John G. Morikis: It's not changed at all. In fact, if you will notice that our stores organization is a key driver for our organization, it's not affected by this. So, they play a very important role in our success and we've confidence in their ability to continue to do that and I'll remind everyone that we talk about 5,000 as the goal only because between where we are now at 4,000 and then that score where I have 6000. So we are on our way, it just a stop on the way. Jermaine Brown: Understood. And you've stated that you plan on getting to leverage of two times by '19. At what point will -- what level of leverage gives you comfort in resuming your share repurchases? Sean P. Hennessy: I think you will see us increase starting in 2020, I think that we'll start to increase that. Jermaine Brown: Okay. And finally, tax rate going forward, should we just assume a blended rate? Sean P. Hennessy: Yes. I think blended rate is a pretty good assumption. Jermaine Brown: Alright. Thank you very much. John G. Morikis: Thanks, Jermaine. Operator: Thank you. Our next question is coming from the line of Ghansham Panjabi with Robert W. Baird. Please proceed with your question. Analyst: Hi, this is actually Matt Creager sitting for Ghansham. Congratulations and how are you guys doing today? John G. Morikis: Great. Analyst: Do you guys foresee any potential for cannibalization amongst your product lines and if so, what product lines you are at risk in both the Valspar and Sherwin portfolios? John G. Morikis: I think it's a little early to talk about that. I will though point out that what it does give us as an expanded product portfolio across a wider geography. So it will give us the opportunity to take this enhanced technology and innovation, these capabilities to our customers and we believe combining these terrific brands and technologies with these R&D capabilities will be coming together will create an opportunity for us to offer more to our customers. So we are excited about that. Analyst: Okay. That's helpful. And then building upon that, how do you guys expect the deal to -- in Valspar's combined shelf space at Lowe's? Does the brand separation between the two provide some protection from any consolidation by Lowe's? John G. Morikis: We will make it a practice never to talk about the decisions that our customers will be making. Our commitment is to work very hard to provide best products and services at a terrific value to help make our customers successful and that goes for all our customers and we will really let them speak for themselves. Analyst: Okay, thanks, that makes sense. John G. Morikis: Thanks Matt. Operator: Thank you. Our next question is coming from the line of Nils Wallin with CLSA. Please proceed with your question. Nils-Bertil Wallin: CLS: Good morning, thanks for taking my question. With respect to your long-term synergy target of around $320 million, would you be able to break out what the components of that are? Is it additional capacity rationalization, revenue synergies, just curious as what is going into that number? John G. Morikis: I think if -- on Slide 9 of the deck, we break it out between, 42% of that is SG&A and we probably are not going to break that down. But we did on the cost of goods sold side, show R&D 5%, manufacturing 8% and then raw materials 45%. So I think that's of $320 million dollars, raw materials being at 45%, that's about $144 million over the amount of raw materials that we're buying between these combined companies, we think that the synergies are very -- we have a high confidence that we're going to hit these numbers. Sean P. Hennessy: Along with resin manufacturing -- we think it will help quite a bit as well, yes. Nils-Bertil Wallin: Understood and then just in term of your controlled distribution model in the US, the power of that; where do foresee you'll be able to extend that into the Valspar geographic exposure on the architectural side, if at all? Sean P. Hennessy: Our belief says that the market that takes -- did take that. So I assume you're taking about the global market expansion, and architectural that I was referring to? Nils-Bertil Wallin: Yes, yes. John G. Morikis: So our belief says that each market dictates the right channel or path to the customer and in many of the markets that Valspar is currently in, there they don't go direct. I think Australia, Gary, right? It's the one that goes direct and will bring our resources to bear and try to help that team to be more successful in serving in their customers with all the things that we talked about: The blended technologies, the products and services, anything that we can do once we get in and get to know that team to help them be more successful. Outside of that, each market, each micro market will determine which channel and how those customers want to be served and then we will do everything we can to provide the best value to those customers. Nils-Bertil Wallin: Got it. Thanks very much. John G. Morikis: Thank you. Operator: Thank you. Our next question is coming from a line of Dennis McGill of Zelman & Associates. Please proceed with your question. Dennis McGill: Zelman & Associates: Hi. Good morning guys. Just one question and may be you could actually answer from both sides. Just curious when you think about the complementary nature of this deal, I think it's been very much appreciated that the two would marry out together pretty well, but it hasn't happened in the past despite that perception. What allowed you guys to get to the closing table now versus any other time in the past? And I think, Gary, you had mentioned you guys have been working together last couple of weeks. Is that essentially how quickly this evolved? Gary E. Hendrickson: Well, Dennis, you'll learn more when the SEC filings are out. But let me just say that we know our industry and market very well and we're very well advised. Our management team and our Board have always focused on opportunities to deliver value for our shareholders and this transaction with Sherwin-Williams great significant shareholder value. So after a careful consideration, our Board determined that this is in the best interest of Valspar shareholders. And as I said, you will learn more about how this all came about when we file our SEC filings. Dennis McGill: Okay. And then John, anything different from a strategic standpoint as far as becoming more compelling now versus any other time in the past? John G. Morikis: Well, I think it just accelerates the path that we're on. It's consistent with our strategy. I'd say, Dennis, it brings scale platform to Asia-Pacific and EMEA, that helps our teams what we have been attempting to do there with a little more scale and more support from the assets that will be coming along, the team that will be coming along. And as I mentioned as well, it brings together these strong brands and technologies. So it really -- my belief says that it really accelerates what we are trying to do in a meaningful way with a terrific team and terrific technologies and we are looking forward to it. Dennis McGill: Okay. Great. Good luck, guys. John G. Morikis: Thank you, Dennis. Operator: Thank you. Our next question is coming from the line of Chuck Cerankosky with Northcoast Research. Please proceed with your question. Chuck Cerankosky: Northcoast Research: Good morning and congratulations everyone. John G. Morikis: Good morning, Chuck. Sean P. Hennessy: Thanks Chuck. Chuck Cerankosky: If we are looking at this closing day of roughly a year from now, how conservative is that and is there a possibility it could be meaningfully sooner than that? John G. Morikis: Well, we are going to follow the process to the T and do everything that we need to comply with governments around the world here that are going to take a look at this. As we have said before here, Chuck, that we are confident in this regulatory approval process, but we don't dictate the time. We will be very responsive. Although we are confident, it's going to take its course and we will be very responsive in that course. Chuck Cerankosky: And Sean, does Sherwin immediately slowdown the repurchase activity to begin building cash? Sean P. Hennessy: Yes, I think you are going to see in the first quarter when we report results, we have slowed down share repurchases. Chuck Cerankosky: Is Valspar likewise obligated by the purchase agreement to start building cash as well to get to that billion dollars you talked about earlier? Sean P. Hennessy: Yeah, I think when you go between signing and closing, there are some agreements in the contracts on they are going to operate, but we don't have anything in there about share repurchase, but we do have different thoughts in thereof, I think that as normal, they are very cash-positive. So, they're going to continue to run the company that way. John G. Morikis: Yeah, I mean, it doesn't make a lot of sense for us to be buying shares at this point, Chuck. So, we'll be building cash to our completion. Chuck Cerankosky: Thank you very much, and I wish you much success. John G. Morikis: Thanks Chuck. Operator: Thank you. Our next question is coming from the line of John Robert with UBS. Please proceed with your question. John Robert: UBS Congratulations. John G. Morikis: Thank you, John. John Robert: I've got two questions here. First one, I assume you want to close this when inventory seasonally peak to assign as much goodwill there as possible and reduce the amount of ongoing amortization. Any idea how much amortization you'll have if the timing comes together that you can close like that? John G. Morikis: Yeah. I'll tell you what, I don't think it's so much the inventory, I think when we have the write off of the assets going through purchase accounting, there are probably other things that are going to affect it more than the inventory. I don't think we are going to -- I think when we get regulatory approval, we're going to close. I don't think particular time is for the inventory, but -- so when you look at this, it's a very difficult number to put in place until purchase accounting is completed. But I'll tell you between that amortization we have gone through, it's going to be hundreds of millions of dollars annually, so, not going to be far off of if we use a couple of hundred million dollars increase. John Robert: Okay. And then secondly, the range on the deal contingencies, $650 million in divestments at the low trigger and $1.5 billion at the high trigger. Is the 650 million near Valspar's US mass merchandise sales, DIY sales? And is the 1.5 billion inclusive of the US overlap in wood products and product finishes? Sean P. Hennessy: No, what we did at all, we went through -- the goal there was certainty and fairness to the shareholders. And I think that those numbers represent a fairness to the shareholders, quite as we have that looked at the way you have done and we don't have a schedule that shows that. It was all about certainly of close and fairness to the shareholders. John Robert: Okay, thank you. John G. Morikis: Thanks, John. Operator: Thank you. Our next question is coming from the line of Scott Mushkin with Wolfe Research. Please proceed with your question. Scott Mushkin: Wolfe Research: Hey guys and nice to be joining you for my first call. So... John G. Morikis: Thanks, Scott. Scott Mushkin: Okay. So just a couple of housekeeping items to make sure I understand a couple of things. The 140 million I think in synergies in fiscal '17, is that what will be realized or is that by the end of fiscal '17 that's a run rate number or is that the actual number for '17? Sean P. Hennessy: That's the actual number of '17 if we close in the first quarter of 2017. The 280 is what we will experience in 2018 and then the 320 is what you should model as the long term annual synergy run rate. Scott Mushkin: Perfect, that's great. And then the second kind of more housekeeping items. As far as the plant setup at Valspar, is the paint different from the coating or are they co-located? Gary E. Hendrickson: It's Gary. They are different manufacturing facilities. Scott Mushkin: Oh okay, great. And then the final thing and this is a broader question. You kind of hit on it a little bit, but just trying to -- obviously definitely like the diversity that you guys have brought in here to the business, I think it makes a kind of sense; but one question I got this morning is the attractiveness, I think a lot of people understand the attractiveness of the U.S. Market if you look at the housing stock and the ageing and kind of the Millennials coming next three to five years. Can you just broadly talk thorough about the attractiveness of the global market again? I mean obviously it's gotten a little bit controversial global on why getting bigger globally makes sense to guys? John G. Morikis: Yes, so if you look at a deal in itself, it begun with from an attractiveness standpoint. In other words, from the start, this is highly accretive to our shareholders, especially if you add in those synergies and we are confident in our ability to do that. The scale that this brings to our global industrial businesses will push our margins in the direction of theirs. And as I mentioned earlier, their coatings margins of 20.1% are closer to our Paint Stores Group of 20%. So when you mention about the North American market being attractive, it clearly is an opportunity for us. The paint margins of Valspar are 13.2%, closer to our Global Finishes Group of 10.5. So we think there are some efficiencies there and they'll benefit us and our customers. And so we think this is a very attractive market and one that we can pursue and importantly, bring benefits to our customers in that process. Gary E. Hendrickson: I'd just say -- Scott, this is Gary, our international performances have been -- businesses have been performing extremely well. And as John said and with this combination bringing additional resources to bear to help our teams be more successful internationally, you'd expect to see even better performance. Scott Mushkin: Perfect, guys. Thanks so much. John G. Morikis: Thanks, Scott. Operator: Thank you. Our next question is coming from the line of Jeff Zekauskas with JP Morgan. Please proceed with your question. Jeff Zekauskas: JP Morgan: Thanks very much. What was corporate cost that can immediately be pulled out of Valspar after the close of the deal? And in your conversation you really haven't talked about plant rationalization very much. Is it the case that pretty much the plant structures would remain in place? John G. Morikis: Well, I think on the plant structures, I think Gary pointed out when you think about standaloneness of coil and packaging and so forth, we don't have any assets like that. I think that what this is going to do is give us an opportunity especially outside the United States where we have -- utilizations, we've said that over the years that may piggyback at some of Valspar's assets around the world and give us higher utilization and you think about our global finishes and you look at our operating margins and you look at their operating margins, I think it's pretty obvious that we need to get the our utilization up and I think that helps them. And the corporate headquarters question you have, I think don't think we are ready to talk about anything like that. We have got 42% SG&A and that's a split that we are going to basically share with you today Jeff. Jeff Zekauskas: And then finally, if it really does turn out you have to divest $650 million in sales, presumably that would be in consumer coatings in the United States. So would that materially change your synergy targets? John G. Morikis: Well, I think I would not use the work material, I sit and take look at it. But I don't think we are going to speculate here, Jeff, on that. We have got a great confidence here. We think this brings as I mentioned, a number of benefits to our customers and we believe that there will be minimal or no divestitures expected. In the unlikely likely event that we are required we've the mechanisms there to give, as Sean mentioned, a greater certainty and fairness, but we've got confidence in our ability to do that and we've got mechanism in place. Gary E. Hendrickson: Jeff, it's Gary from the Valspar side, the great price is 113 and that's the highest probability outcome and is best for both parties and our shareholders. We think that no divestitures should be necessary or deemed appropriate by regulators in this transaction. Jeff Zekauskas: Okay, great. Thank you so much. Gary E. Hendrickson: Thanks, Jeff. Operator: Thank you. Our next question is coming from the line of the Arun Viswanathan with RBC Capital Markets. Please proceed with your question. Arun Viswanathan: RBC Capital Markets: Hey guys, thanks for taking my question. I guess just wondering you guys have laid out the 280 by year two, 320 long term. Are there any scenarios where you could see even greater upside to those numbers? Sean P. Hennessy: Well, yeah, we always greater -- I think we are always pushing ourselves to meet and exceed these numbers. So I think that we've had multiple paths that show a higher number, but this is a number that we want to represent today. Arun Viswanathan: Okay. Fair enough and then maybe you can just tell us about the cadence, I mean, the SG&A stuff, how does that break out? Is that more readily achievable than derives or how do you see that kind of flowing through bucket-wise? Sean P. Hennessy: Just like on the previous question asked, I mean we feel that we're going to be able to meet these numbers, but -- at the pace that we are showing you here. But we feel very confident that we're going to hit these numbers, but we are not going to break down the synergies any finer than what we have on the schedule. John G. Morikis: That's right. But I think you can point back, as I mentioned earlier to our recent actions with the Comex integration where we worked I think aggressively towards getting our expenses and -- our expenses down and our efficiency up and we do that by working together with our o teams and with that great confidence in ability to do that. I think we've demonstrate that. Arun Viswanathan: Okay. Lastly, just related to an earlier question, I mean, this doesn't really indicate any difference in your own organic growth expectations over the next couple years. Right? John G. Morikis: None whatsoever. Arun Viswanathan: Okay, thank you. John G. Morikis: Thank you. Operator: Thank you. Our next question is coming from a line of Vincent Andrews of Morgan Stanley. Please proceed with your question. Analyst: Hi, this is Matt for Vincent. I was wondering if you could speak to the implications that the transaction has on your previously expressed guidance ranges for 2016 and whether the slow pace of repurchases would be incremental to that. Thanks. Sean P. Hennessy: I think that we have a first quarter call coming up and we'll probably give a lot more guidance on that. As you can imagine, there are some expenses from this transaction that will bleed into 2016 for us and the share repurchase number will change, but -- So I think we will be giving -- updating that guidance at the end of the first quarter, but we're not prepared today. Analyst: Okay, thanks. John G. Morikis: Thank you. Operator: Thank you. Our next question is coming from a line of Greg Melich with Evercore ISI. Please proceed with your question. Greg Melich: Evercore ISI: Thanks. I have one follow up for Sean and then a little bit more on the synergies. Sean, the financing, could you help us take us through the assumption that you have for interest rate on that and also the fashion of the bridge for modeling purposes? Sean P. Hennessy: Yes, I think that what we believe is our financing costs are set on the bridge, but basically we are not going to draw on that bridge. If we need -- we can just get to financing in place where again, we are assuming the $2 billion and that's public, you know what the interest rates there are. And when you look at the 8.3 billion, we looked that we think we are going to get an interest rate below sub-4, so when we take a look at the $10.3 billion, we think our blended rate will be in that 4% rate annually. Greg Melich: Got it and the bridge is sort of like that number, 4%? Sean P. Hennessy: Yes. Greg Melich: Okay. And then the second was on going back with synergies, understand why the SG&A not going in more detail, I guess conceptually I am having trying to understand the raw materials a little bit better, if I think about it that 45% of the 320 is like 3% or 4% of your raw material costs. Could you just help us to understand, presumably Valspar and Sherwin-Williams are both very good at buying raw materials already. What sort of changes to allow that even better purchasing to occur? Sean P. Hennessy: I think number one is we think that the volume will help. We think that the resin capabilities of Valspar right now will help and I can tell you right now 3% when you compare to what we've realized whether it's Comex North America or others is a tremendously smaller number than what we usually have in this performance. Greg Melich: Okay, great and then I guess last on the business itself, if there are -- it doesn't appear to be revenue synergies here. I might be missing something there, but where do you see the biggest opportunity in terms of revenue synergies, is it outside the U.S., in U.S., is it taking Valspar product technology through Sherwin-Williams or vice versa? John G. Morikis: Well, I think it provides us an access to expand our product portfolio through all geographies with additional technologies and to look at their technologies and provide those technologies perhaps through different channels. So we think the enhanced technology and innovative capabilities improve our ability to leverage those and will determine where those markets are and how we can best utilize them. We think we will benefit as well from cost reductions and synergies there and we think overall combined companies R&D capabilities will help us to be able to grow those businesses, with that terrific brands, terrific technologies and terrific people. You combine those with ours and we think it's going to give us terrific opportunity to better serve our customers. Greg Melich: That's great, congratulations and good luck guys. John G. Morikis: Thank you. Operator: Thank you. Our next question is coming from the line of Christopher Perrella with Bloomberg Intelligence. Please proceed with your question. Christopher Perrella: Bloomberg Intelligence: Good morning. Thanks for taking my call. Just a quick clarification, Sean, from you. The 2.0 times EBITDA target for 2019, is that sort of the final, where you see the balance sheet working out over the long term or is that just a step to get down closer to one where you've been most recently? Sean P. Hennessy: We've always been challenged because we're at one times EBITDA and we've always maintained that over to long term because we said we wanted the situation where if the right acquisition comes up and we've always said we would leverage up for the right acquisition and this is the right acquisition. But when you take a look at this acquisition, as we complete it, there's less acquisitions like that. I think this is challenging us whether we go all the way back down to 1, if we go to 1.5, 1.75, I think we have financial community presentation in May and we will probably give you a little more guidance, but we're thinking through that leverage, that long term leverage right now. Christopher Perrella: All right. Thank you and then I guess the overlap in the industrial coatings business, how much overlap is there in the industrial coatings business between Valspar and Sherwin? John G. Morikis: It's minimal, very minimal. Christopher Perrella: All right. Thank you very much, congratulations on the deal both of you guys. John G. Morikis: Thank you very much. Operator: Thank you. Our next question is coming from the line of Eric Bosshard with Cleveland Research. Please proceed with your question. Eric Bosshard: Cleveland Research: Thank you. Few things, first of all, John, you have talked about repeatedly that they are able to make a 20% margin in the coatings business and you historically generated 10% of 11% margin on that side of the business. If you look at their portfolio and your portfolio and then the opportunities within the combination, do you conclude that you should be able to make their margins in your similar business, is that the point that you're making? I'm trying to just understand that a little bit better. John G. Morikis: Yes, I think as Sean mentioned earlier about our utilization, we think the additional scale will help us improve our efficiency. Valspar has done a terrific job of not only having a terrific mix of business that helps them, but they've got better utilization and we think bringing the utilization together by combining these volumes gives us that opportunity to improve margins as well. As well as the mix of the products, as you look at the technologies, we think that there are some opportunities there as the companies come together to better utilize technologies that might exist in both businesses to help our customers by bringing technologies, or I might describe it as solutions to our customers in a way that help them overall and at the same time could provide us the opportunity to improve our margins. Eric Bosshard: Okay. And then secondly, you had mentioned that one of the points of attractiveness of this was that it makes a more diversified and more resilient business. Can you help us understand a little bit of how you feel about the combined growth profile in the cyclicality of the business having added Valspar to it, how does growth and the cyclicality looks different is a question. Gary E. Hendrickson: Eric, it's Gary. Our businesses are very cyclical, our coatings businesses are not very cyclical, our packaging coatings business is -- the global growth will be for the industry will be about 3%, we have been growing faster than the industry for 20 years and I expect that we will continue to do that. There are structural things in that part of the business that are favorable to us. Our coatings business over the last five years or so has had a significant mid-single digits CAGR. Re have been growing our net new business in coatings 4% to 5% for last five years and expect that that will continue. So I just thought I didn't object at this point, and John can talk about the architectural businesses better than I can. But I don't think about Valspar as being a cyclical business. We have a couple segments that you might be thinking about such as off-road and construction that tend to be a little bit cyclical, but as a total portfolio I wouldn't call our coatings business cyclical. John G. Morikis: And I think Eric, you know our business very well. 80% of our business architecturally is maintenance, we don't see this shift in our business from a cyclicality standpoint at all. Eric Bosshard: And in terms of the overall growth profile of the combined business, John, relative to what we're used to ensure one as this, the underlying growth rate the same, is the underlying growth rate better after this combination? John G. Morikis: I think that if you look at the segments, I think the stores group, their coatings group I think is very similar. What I think is going to be interesting is our consumer group for years, Eric, we've been answering that our consumer group will be flat to up slightly, long-term strategy. I think in a couple of years I think that might change and we could be thinking about a mid-single digit on that combined consumer group and that's pretty exciting because if you look at the -- put that out versus a flat, I think that's going to improve the long-term view of the company in growth rate. Eric Bosshard: Okay, that's helpful. Thank you. John G. Morikis: Thank you Eric. Operator: Thank you. Our next question is coming from the line of Mike Harrison with Seaport Global. Please proceed with your question. Mike Harrison: Seaport Global: Hi. Good morning and congratulations. John G. Morikis: Thank you. Mike Harrison: John, I was wondering if you could talk a little bit about the Europe business. I know that Valspar has been kind of focused on just the UK on the architectural side and had an opportunity to expand potentially at some point into continental Europe, but they would need additional capacity in Europe if they were going to do that. Does Sherwin have the capacity and just not the opportunity and that's what we are going to do as we look to attack Europe going forward? John G. Morikis: Well, I think if you look at Europe you have to break it down first into two areas. You have to look at the industrial side and the architectural side. Let me start with the industrial and then roll over into the architectural. The industrial side we have primarily been a wood business on the industrial side. We've got some protective and marine business there, but it's a small yet growing business. The combination of our businesses together in the industrial market inside of the EMEA, we think the combined companies bringing, as we mentioned, an expanded portfolio of products, terrific technologies and we think we'll be able to grow there together better the combined product. We think we'll be able to gather perhaps an opportunity to pursue customers with a better offering helping to bring solutions. On the architectural side, it's a business that's been growing for Valspar. We have got facilities there and we have got primarily a protective and marine facility right now that might have capability. But as we get in and evaluate the opportunities there and our best way to pursue those, we will take them the most efficient way to be able to service our customers effectively there. I think it's a little bit early to predict where they are going to need the business and out of which plants we'll be to serve those, but we do have facilities there, combined we have some great people there and we've got a strong desire to be there. Mike Harrison: All right and then you've mentioned that you expect the acquisition to be accretive immediately to EPS. Are you prepared to give us any target for accretion either for 2017 and 2018? Sean P. Hennessy: No, I think that the we're going to watch out this place out, we will try to get a better idea on timing and at this time, I will give you a little more target. I think Valspar's EBITDA last year was $717 million, street consensus is $755 this year. This year we've basically -- you take a look at that plus the growth in 2017, I think that we're trying to give you an increased amortization which is a couple of hundred million dollars, we're trying to give you some information on the interest and I think if you take a look at the tax rate, all those things are pretty easy. I think it will give you a pretty close range of where we think will be. Mike Harrison: Understood. Thank you very much. John G. Morikis: Thanks, Mike. Operator: Thank you. Our next question is coming from the line of Chris Evans with Goldman Sachs. Please proceed with your question. Bob Koort: Goldman Sachs: Thanks guys it's actually Bob Koort, good morning. John G. Morikis: Hi, Bob. Bob Koort: John, I think you spoke about admirable margins on the coatings side and a gap on the paint side. Have you thought about, I mean, can you give us some thoughts on how much you can bridge that gap between the Valspar paint and Sherwin paint and what some of the mechanisms you can use as a combined company to elevate those Valspar paint margins? John G. Morikis: I think together we're going to be looking at technologies. I think it really comes down to providing our customers with the best solutions and we will figure out what those are in a way that can hopefully be rewarding to our customers and in a way that can help both our customers and us reach those levels. So as we peel the onion back here, we will look at what opportunities those are and we'll be responsive to capturing those. Bob Koort: And may be for Sean on the mechanism of reaching any of those divestiture thresholds and changing their purchase price. The proceeds of those divestitures still stay with Sherwin and do those go to the Valspar's shareholders? Sean P. Hennessy: It goes to the company and we are buying the company. Bob Koort: Got it. Thanks very much. John G. Morikis: Thanks, Bob. Operator: Thank you. Our next question is coming from the line of Chris Parkinson with Credit Suisse. Please proceed with our question. Chris Parkinson: Credit Suisse: Perfect. Thank you. You mentioned R&D is a small portion of your cost saving synergy levels. But over the long term, are there also some possibilities to better leverage what you're going to inherent from Valspar, particularly the resins portfolio? Can you just comment on anyhow, any way their technology capabilities are ultimately going to fit into your longer term strategy? Thank you. John G. Morikis: Yeah, a key point for us, we're very excited about the resin capabilities, the people, the teams, the technology. We do believe that there's going to be an opportunity for us, we're very excited about that. We've got a lot of respect for what they've done and how they do it and we're looking forward to leveraging that . Chris Parkinson: Perfect. Thank you. John G. Morikis: Thanks Chris. Operator: Thank you. The next question is coming from the line of with Dmitry Silversteyn with Longbow Research. Please proceed with your question. Dmitry Silversteyn: Longbow Research: Good morning guys and let me add my congratulations to a long list of well-wishers, but this is a long ways coming, but glad you guys finally got together. Couple of questions, more of follow up, first of all for Sean, I think you mentioned about $200 million were still step up from amortization, is that sort of the D&A step up or is depreciation going to be in addition to that? Sean P. Hennessy: Depreciation will be in addition to that. Dmitry Silversteyn: Do you have any idea what that would be, what the total step you would -- I am trying to get from the EBITDA to an EBIT level? Sean P. Hennessy: Yeah, I think that, I guess if I said the D&A is going to go up close to $300 million, is probably that kind of a number. But again, until purchase accounting is completed, these are guesstimates. Dmitry Silversteyn: Right, okay, got it. Secondly, just a quick follow up on your European coatings business, given the size of your business in Europe and what you'll be getting with Valspar, sort of what's the overall footprint that you would have as far as the sort of sales in the region and do you think that that's going to be sufficient at least for the time being to give you the critical mass and the leverage that you're looking for to expand or do you thinking you get substantially larger in Europe to really be sort of a meaningful player in that region? Sean P. Hennessy: While I answer short, I will let John answer in detail, but the answer do you want to be larger in Europe, the answers is yes. John G. Morikis: Yes. And you can imagine, we have got the numbers down to the penny of exactly where we going to how much we are going to sell now, but we are probably not going to again on an ongoing basis we are not going to be reporting Europe individually. So we are probably not going to give you that exact number Dmitry. Dmitry Silversteyn: Okay and then final question on sort of thinking about some of the synergies between the businesses, coil covering is the strength of Valspar as you mentioned a couple of times, there is increased coil covering usage in automotive applications; is there an opportunity to get Valspar's coil business not necessarily away from constructions and appliances, but actually have a new outlet into the automotive given that you have some strength in automotive both in the OEM and the aftermarket side? Gary E. Hendrickson: Dmitry, it's Gary. As you said we haven't focused on that, but that's something, that's an area that we can explore with the combined R&D resources of these two companies, there will be things that we can do jointly that neither one of us could do on our own. So we'll just wait and see. Dmitry Silversteyn: Hi, Gary, thank you very much and congratulations again. Gary E. Hendrickson: You're welcome. Thank you. Operator: Thank you. Our next question is coming from the line of Jay McCanless with Sterne Agee. Please proceed with your question. Jay McCanless: Sterne Agee: Hi good morning and congratulations everyone. Two quick questions, the first one I jumped on late, have you guys disclosed anything around one- time costs or transaction costs for this year? Sean P. Hennessy: No, we haven't disclosed that. Jay McCanless: Okay, the second question I had in terms of exposure to different industries, I know oil and gas exposure, people have been concerned about in the past, assuming this deal goes forward as stated, what type of exposure you have to oil and gas? Is it going to increase into their other industries where you're going to be overly concentrated relative to where you are now? John G. Morikis: I don't think Valspar has a position, a great position affected by oil and gas and combined I don't think it changes us dramatically outside of what we've talked about as far as the addition of the coil and packaging. Jay McCanless: Got it, okay. John G. Morikis: Our oil and gas business is really just pipeline coatings and transmission pipeline coatings and a lot of those projects still on track and as a percentage of the overall company, it's going to pretty small. Sean P. Hennessy: And actually if you look -- because they are so complementary, it actually reduces the exposure to basically every market -- Jay McCanless: Okay, alright. Thank you guys, appreciate the color. John G. Morikis: Thanks Jay. Operator: Thank you. Our next question is coming from the line of Rosemarie Morbelli with Gabelli & Company. Please proceed with your question. Rosemarie Morbelli: Gabelli & Company: Thank you. Thank you for taking my question after the bell and congratulations to all. I was wondering you have talked about EMEA in terms of you are benefiting from Valspar's exposure there, presence there. What about Latin America? Is there anything planned in terms of introducing Valspar products into that region where you are I believe stronger? John G. Morikis: Yes, so in the Valspar, I want to make sure I understand your question. Valspar currently has mainly coil and packaging in Latin America. The opportunity to introduce brands into Latin America, are you suggesting on the architectural side if we will take the Valspar brands there or are you talking about --? Rosemarie Morbelli: Yes. John G. Morikis: We likely would not. As we're expanding there, we're really trying to focus on the presence of our Sherwin brand. What might likely happen thought is the review of the technology might allow us to take different technologies that are currently here in North America or around the world and funnel those into Latin America in a way that can help those customers by providing a solution that may not be in our portfolio right now. So we will, as we do currently in our portfolio, review those technologies and really look to determine if there is something that could bring value to those customers and if so we will deploy them there. Rosemarie Morbelli: Thanks and then looking at Asia-Pacific, you have mentioned several times that you have a low utilization level. So am I to translate this that you are obviously going to consolidate manufacturing facilities and then combined the capacity in all the production into one or two of the newest plants? Is that how you're going to do it? John G. Morikis: I think it's a little early to comment to any one plant, but I would say that go back to our performance as it related to the Comex integration, I think we've demonstrated an ability to really dial in, understand the best move for our company, our customers and figure out the best way to drive value and at the times it does take the course that you described and if that's the best course then that the one we'll take. Rosemarie Morbelli: And then going back, if I may, on that divestiture while you think that you'll not reach the $650 million of threshold, how much do you think is likely to be divested and I'm guessing that it will be in one of the private brands categories? Sean P. Hennessy: We expect to divest zero. I think right now the game plan is zero and whole mechanism was to create certainty and again, instead of having to go down the path if at all something did occur, the unlikely, that we haven't negotiated pre and we don't have to worry about trying to do it in the post. John G. Morikis: And I'd add, we have got some of the brightest minds in antitrust look at this in detail and they I believe that we're on firm ground here. Sean P. Hennessy: I think we all believe, we're paying $113 a share. Rosemarie Morbelli: Okay and that I guess this term comes after you were not able to buy that Comex acquisition in Mexico? Sean P. Hennessy: I think every time you go through an acquisition, you bring in it in your prior experiences. Rosemarie Morbelli: Thank you Sean. Looking forward to hearing more in May. Do you have a date for the Investor Day? John G. Morikis: May 26. Sean P. Hennessy: May 26. John G. Morikis: In Cleveland. Rosemarie Morbelli: Thank you. John G. Morikis: Thanks Rosemarie. Operator: Thank you. Our next question is coming from the line of Sachin Shah with Albert Fried. Please proceed with your question. Sachin Shah: Albert Fried Hi, good morning, congratulations. So, I think I heard you multiple times saying that the divestments seem minimum or limited, but I am just trying to reconcile difference between the deal price 113 versus 105 of, if there is divestments needed the 650 million, I think that was stated. So, I know you feel comfortable with that but just maybe if you can just reiterate or give us some additional clarity on why that shareholder should be getting $113. And just out of curiosity, re shareholders going to be voting when they do vote, are they going to be voting knowing that they're going to be getting $113 or are regulatory approvals still going to pending and they're not going to know exactly what the final price is going to be? Thank you. Gary E. Hendrickson: On the last point, it's Gary, on that last point, shareholders don't have to vote yet and they are going to understand more after we file our proxy. So I'll just leave that one at that. As I said before, the agreed price is 113 and we believe that that is the highest probability outcome and best both party shareholders. We don't think any divestitures should be necessary, but as you expect, and as Sean said, we spent a lot of time on this with our advisors and expect that the transaction will receive all necessary approvals. We've got very complementary businesses and the benefits of this transaction should provide to our customers, should again result in zero divestitures. But that said, we wanted to make sure that in what we see as the very unlikely event that divestures over 650 are required, shareholders on both sides would be provided with certainty of closing on terms that are fair to all shareholders. John has said it two and three times on the call, it's all about certainty of close. This is a deal that is going to close and we wanted to make sure that our shareholders understand that. Sachin Shah: Okay. So the premise of having that contingency is okay, if it is more than 650, we are going to close, you're just going to get a lower amount. And just a follow-up question, as far as regulatory approvals, it seems like you probably will require approval in China, mass com approval. Sean P. Hennessy: Let's just wait and see, the antitrust experts will be making those filings, but will probably not appropriate for John or I to comment on that, we are not experts. Sachin Shah: Okay and then first point about the certainty of closing, that's the reason why you were putting it in there. It's going close. The question is, if it's below 650, which you believe, and if it's above it, you're still going to close and you're going to make the required divestments, that's the point. John G. Morikis: Yes. Sachin Shah: Okay. Thank you, congratulations again. John G. Morikis: Thank you. Operator: Ladies and gentlemen. We have reached the end of our question and answer session. I would now like to turn the floor back over to Mr. Wells for any additional concluding comments. Bob Wells: Thank you, Jesse. Again, I would like to thank you all for joining us today. Sean and I will be available for the balance of the day to answering your remaining questions you might have. Also if you had difficulty to accessing the presentation materials for this call, the link on both website is working and the deck should be accessible. Thanks for your participation this morning and thank you for your continued interest in Sherwin-Williams and Valspar. Operator: Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.