Is an offer price above $106 per share in the best interest of stockholders, based on the stand-alone value of Valspar and the projected synergies? What maximum price could be justified in a bidding contest?

For the exclusive use of H. Wang, 2017. W16751 A \"COMPELLING AND PRE-EMPTIVE\" OFFER FOR THE VALSPAR CORPORATION1 Mark Simonson wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright 2016, Richard Ivey School of Business Foundation Version: 2016-11-17 In May 2015, Gary Hendrickson, the chairman and chief executive officer (CEO) of the Valspar Corporation (Valspar), contacted the CEO of an industry competitor to discuss a potential strategic combination of the two companies.2 At the Valspar board meeting in June, Hendrickson reported his initial conversation, and the board authorized management to continue discussions to gauge interest in a stock-for-stock merger.3 The two companies continued their discussions. In December, both companies hired financial advisors to \"further analyze their expected synergies,\" and then entered into a mutual confidentiality agreement.4 As discussions continued, Valspar's board and senior management realized that an alternative strategic collaboration might be more beneficial. The sale of the company at a premium to a larger competitor would likely result in a higher value for Valspar stockholders than the proposed stock-for-stock merger with the similar-size competitor.5 At the June and September board meetings, Sherwin-Williams, the second-largest comparable firm in the industry (see Exhibit 1), was discussed as an \"obvious acquirer, given its relative size, financial and balance sheet strength, and geographic footprint.\"6 Sherwin-Williams had intermittently contacted Valspar over the previous three decades, indicating an interest in exploring a business combination.7 Valspar had, up to that point, indicated that it was not for sale, and Sherwin-Williams's CEO Christopher Connor, like his predecessors, was not interested in making a hostile, unsolicited offer.8 Realizing that the landscape had changed, and that Valspar was now for sale, Connor was willing to consider a bid to acquire the long-sought-after target. Connor and Hendrickson agreed to meet on January 12, 2016, at the Sherwin-William headquarters in Cleveland, Ohio.9 Connor knew that he and his deal team had a limited amount of time to conduct due diligence and determine a fair offer price that would not result in Sherwin-Williams overpaying and reducing the value of the firm's shares. THE SHERWIN-WILLIAMS INITIAL OFFER On January 18, 2016, Valspar and Sherwin-Williams entered into a mutual confidentiality agreement to facilitate discussions and due diligence between the two companies.10 Two days later, senior management This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 2 9B16N063 from the two companies met at the Valspar offices in Minneapolis, Minnesota, to discuss Valspar's business in more detail.11 A week later, on January 27, newly appointed Sherwin-Williams CEO John Morikis called Hendrickson to propose that Sherwin-Williams acquire Valspar for US$10612 per share in cash.13 This offer represented a 42 per cent premium over the Valspar shares' closing price for that day of $74.61.14 Hendrickson responded to Morikis by informing him that the board did not find the $106 per share offer \"compelling and pre-emptive.\"15 He reminded Morikis that discussions between Valspar and a third party made it imperative for Sherwin-Williams to \"put its best foot forward on an accelerated timetable.\"16 The next day, Hendrickson reached out to a third potential acquirer, intent on fuelling the developing bidding war.17 However, at a board meeting on January 29, the board expressed its belief that \"no other bidder would likely be in position to offer greater value and closing certainty\" than Sherwin-Williams.18 Further, the board reasoned that, \"if there were another buyer capable of and willing to make a more compelling offer to acquire Valspar, agreeing to and announcing a transaction with Sherwin-Williams would be the best way to elicit any such offer.\"19 In the following weeks, Valspar and its financial advisors, Goldman Sachs and Bank of America Merrill Lynch, continued negotiations with Sherwin-Williams and its financial advisors, Citigroup and JPMorgan Chase & Co. (JPMorgan). The negotiations covered both an acceptable offer price and suitable closing conditions. Hendrickson and Morikis then scheduled a meeting to \"discuss the assumptions in SherwinWilliams's valuation model.\"20 VALSPAR AND SHERWIN-WILLIAMS Valspar and Sherwin-Williams provided branded paint and related products to retail customers and painting contractors. Sherwin-Williams reached the market primarily through its thousands of retail stores, which were located mainly in North America, while Valspar sold through independent retail hardware and home improvement chains around the world. The companies also competed in the industrial coatings business. The paint and coating industry, which included firms manufacturing paints, varnishes, lacquers, enamels, and other coatings, was highly concentrated: the largest 10 companies accounted for more than 50 per cent of revenue (see Exhibit 1). In 2015, the industry had three very large competitors (over $10 billion in worldwide sales), eight large competitors (between $2 billion and $5 billion in worldwide sales), and over 7,000 other smaller competitors (see Exhibit 1).21 Approximately 40 per cent of industry revenue was from house paint, 25 per cent was from product finishes (for goods such as automobiles and furniture), 20 per cent was from industrial coatings, and the rest of the revenue was from other products, including varnish removers and paint thinners.22 Valspar was the fifth-largest company in the global paint and coatings industry (see Exhibit 1). The company was headquartered in Minneapolis, Minnesota; operated 57 manufacturing facilities in 20 countries on six continents; and had 11,000 employees.23 In 2015, the company reported $4.4 billion in revenue and $729 million in earnings before interest, taxes, depreciation, and amortization (EBITDA). The company was organized in two business segments: paint and coatings. In 2015, the paint segment had $1.7 billion in sales, $220 million in EBITDA, and a 13 per cent EBITDA margin; the coatings segment had $2.5 billion in sales, $502 million in EBITDA, and a 20 per cent EBITDA margin (see Exhibits 2 and 3).24 This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 3 9B16N063 Valspar generated the majority of its paint sales in North America (62 per cent), but the company had significant international operations, with sales in Australia and New Zealand (15 per cent), China (14 per cent), and Europe (9 per cent).25 The coatings division had product lines in packaging (33 per cent), general industrial (30 per cent), coil (20 per cent), and wood (17 per cent).26 Sherwin-Williams was the second-largest industry competitor, with headquarters in Cleveland, Ohio (see Exhibit 1). In 2015, the company reported $11.3 billion in revenue and $1.8 billion in EBITDA. The company's largest business unit, the paint store group, operated 4,086 company-owned stores.27 In 2015, the paint store group had $6.8 billion in revenue, the consumer group had $1.6 billion in revenue, the global finishes group had $1.9 billion in revenue, and the Latin Americas coatings group had $613 million in revenue.28 The company's foreign subsidiaries generated 16 per cent of sales (see Exhibits 4 and 5).29 SYNERGIES Sherwin-Williams worked closely with its financial advisors, Citigroup and JPMorgan, to determine an offer price that would not result in Sherwin-Williams overpaying in the deal with Valspar. The median firm in the industry was valued at 12 times EBITDA (see Exhibit 6). Because the offer price was above $106 per share, the Sherwin-Williams team realized that the company would likely be paying more than 15 times trailing EBITDA. Sherwin-Williams also wanted to maintain its \"A\" bond rating, which allowed its bonds to trade at yields-to-maturity of less than 2 per cent above current Treasury bond yields, and there was reason to be concerned that the large acquisition might affect the firm's interest coverage ratios (see Exhibits 7 and 8). Therefore, the team needed to determine whether the deal's synergies would justify such a high price. After studying the significant horizontal overlap in the two companies' business units, the team identified four major areas that would be expected to provide cost synergies: selling, general, and administrative expenses; raw materials purchasing; research and development expenses; and manufacturing, distribution, and inventory management.30 The team noted that Sherwin-Williams had successfully acquired and integrated 21 businesses in the previous 10 years and could use this experience to quantify the expected cost savings.31 In the proposed horizontal combination, the team expected significant savings in selling, general, and administrative costs from factors such as reductions in payroll. However, Morikis was hesitant to identify the exact nature of any payroll savings. He stated that Sherwin-Williams would continue to have its headquarters in Cleveland, but Valspar \"is a major part of the Minneapolis area and we intend to maintain a significant presence there.\"32 The team estimated that, if Sherwin-Williams acquired Valspar, a \"longterm annual synergy target\" of $134 million in cost savings would be realized from the selling, general, and administrative line item beginning in 2017.33 Similarly, shared research and development overhead was estimated to decrease expenses by $16 million per year.34 Given the similar inventory purchases required to manufacture related products, the team expected that increased bulk purchasing would improve purchasing power, leading to an annual cost savings of $144 million in cost of goods sold.35 Overlapping manufacturing and distribution operations were expected to decrease expenses by another $26 million per year.36 Morikis expected that significant revenue synergies could be realized, and he explained his theory as follows: This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 4 9B16N063 Valspar will expand Sherwin-Williams' capabilities into the 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 (Europe, [the] Middle East, and Africa). Valspar gives Sherwin a much bigger international business, since 50 per cent of Valspar's business is outside of North America, and dramatically boosts Sherwin's industrial business by expanding into packaging and coil coatings and bolstering their general industrial coatings.37 However, he did not quantify the estimated effect on future revenues for the combined entity. One analyst who agreed that there were potential revenue synergies noted that \"the deal makes a ton of strategic sense\" because it \"boosts Sherwin-Williams's sales to U.S. do-it-yourself paint customers, international markets, and industrial coatings markets, three areas where the company is underexposed.\"38 ANTITRUST CONCERNS Along with the concern that overpaying for Valspar could result in a drop in Sherwin-Williams's share price, Morikis had reason to be concerned about potential antitrust problems. Before Morikis took over as CEO on January 1, 2016, Sherwin-Williams had been forced to abandon a stock purchase agreement to acquire Consorcio Comex (Comex), Mexico's largest paint retailer. That issue arose in April 2014, under the direction of then CEO Connor, after the Mexican Antitrust Commission voted against the transaction.39 That case ended in a costly lawsuit, in which Comex accused Sherwin-Williams of breaching its obligations under the merger agreement.40 Sherwin-Williams was then forced to watch as its larger rival, PPG Industries, went on to acquire Comex later in 2014.41 The objective of antitrust regulators was to prohibit deals in which the resulting entity would have enough market power to be able to raise prices. Sherwin-Williams and Valspar faced antitrust scrutiny from jurisdictions around the world, but the biggest concern was likely the United States. Although the two companies shared little overlap in other countries, the deal could raise Sherwin-Williams's market share in the North American paint market to more than 50 per cent.42 In the United States, for a transaction of this size, Sherwin-Williams and Valspar would need to file notification of the transaction under the requirements of the Hart-Scott-Rodino Act of 1976. After the filing, either the U.S. Department of Justice (DOJ) or the U.S. Federal Trade Commission (FTC) would assess the case. The DOJ or FTC would then either take no action, by granting an early termination, or require a second request for information, which could lead the DOJ or the FTC to sue to block the transaction. The regulator could also negotiate a consent decree. In such a situation, the regulator could agree not to sue to block the transaction if certain actions were taken, such as selling off product lines or stores. In 2014, only 2 per cent of the 1,663 transactions reported under the Hart-Scott-Rodino Act resulted in a second request for information.43 To help firms gauge the likelihood of potential antitrust enforcement difficulties, the DOJ and the FTC issued their \"Horizontal Merger Guidelines\" in 1997. The guidelines (which were slightly modified in 2010) moved away from the strict, mechanical application of industry concentration tests of earlier guidelines and included more qualitative considerations, seeking to weigh market power considerations against potential efficiency improvements.44 The guidelines considered the following factors: This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 5 9B16N063 Market concentration as measured by the Herfindahl-Hirschman Index (HHI) Efficiency improvements Potential adverse competitive affects to the market in the future Barriers to entry in the industry Whether the merger might be an alternative to imminent failure45 The HHI was calculated by summing up the squares of the individual market shares of all the participants. According to the revised 2010 guidelines, the DOJ and the FTC would consider a market \"unconcentrated\" if it had an HHI below 1,500, which had been revised from the previous threshold of 1,000. A market would be considered \"highly concentrated\" if it had an HHI of 2,500 or greater, which had been revised from the previous threshold of 1,800. Also, a merger producing an increase of more than 200 HHI points and a post-merger HHI exceeding 2,500 would be presumed to be anti-competitive.46 THE SHERWIN-WILLIAMS FINAL OFFER The Sherwin-Williams deal team was aware that the Valspar board was awaiting a \"compelling and preemptive\" offer on an \"accelerated timetable.\"47 The longer the company waited, the greater the chance of more bidders emerging, potentially driving the price higher. Although time was limited, several questions still remained. Was an offer price above $106 per share in the best interest of Sherwin-Williams's stockholders based on the stand-alone value of Valspar and the projected synergies? What maximum price could be justified in a bidding contest? What was the probability that antitrust regulators would eventually block the deal, resulting in a waste of time and resources to structure a deal that would later collapse? Was there a way to structure the merger agreement to allow for a potential consent decree? This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 6 9B16N063 EXHIBIT 1: GLOBAL PAINT AND COATINGS INDUSTRY REVENUE, 2015 (IN US$ BILLION) Company Name PPG Industries Sherwin-Williams Akzo RPM International Valspar Axalta Nippon BASF Kansai Jotun Masco Benjamin Moore All others (more than 7,500 firms) 2015 Sales in Paint and Coatings 14.2 11.3 11.1 4.7 4.3 4.1 3.9 3.5 2.8 2.0 2.0 0.8 41.4 Note: Some firms also have revenue outside of paints and coatings. Source: Sherwin-Williams, \"Sherwin-Williams to Acquire Valspar: Expanding Sherwin-Williams' Product Lines and Building a Global Platform for Growth,\" investor presentation, March 20, 2016, accessed May 17, 2016, http://s2.q4cdn.com/148176307/files/doc_presentations/2016/SHW-VAL-Investor-Presentation.pdf. EXHIBIT 2: VALSPAR INCOME STATEMENTS, 2013-2015 (IN US$000) Net Sales Cost of Sales Restructuring Charges Gross Profit Research and Development Selling, General, and Administrative Restructuring Charges Gain on Sale of Assets EBITDA Depreciation Interest Expense Other (Income) Expense, Net Earnings Before Tax Income Taxes Net Income (Loss) Shares Outstanding October 25, 2013 4,194,977 2,721,887 22,429 1,450,661 128,265 721,123 October 31, 2014 4,625,624 2,957,197 28,471 1,639,956 134,134 832,335 October 30, 2015 4,392,622 2,741,676 18,435 1,632,511 132,813 810,136 16,246 0 585,027 92,603 64,758 3,871 423,795 134,540 289,255 90,526 12,668 0 660,819 100,910 65,330 2,697 491,882 146,481 345,401 86,046 8,454 48,001 729,109 81,122 81,348 2,838 563,801 164,295 399,506 82,447 Note: EBITDA = earnings before interest, taxes, depreciation, and amortization Source: The Valspar Corporation, United States Securities and Exchange Commission, Washington, D.C. 20549: Form 10K, 4, accessed May 11, 2016, http://d1lge852tjjqow.cloudfront.net/CIK-0000102741/4f6303ed-9532-4792-be80c781a53510d6.pdf. This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 7 9B16N063 EXHIBIT 3: VALSPAR BALANCE SHEETS (IN US$000) Assets Current Assets Cash and Cash Equivalents Restricted Cash Accounts Receivable Inventories Deferred Income Taxes Prepaid Expenses and Other Total Current Assets Goodwill Intangibles, Net Other Assets Long-Term Deferred Income Taxes Property, Plant, and Equipment Land Buildings Machinery and Equipment Property, Plant, and Equipment, Gross Less Accumulated Depreciation Property, Plant, and Equipment, Net Total Assets Liabilities and Stockholders' Equity Current Liabilities Short-Term Debt Current Portion of Long-Term Debt Trade Accounts Payable Income Taxes Payable Accrued Liabilities Total Current Liabilities Long-Term Debt, Net of Current Portion Long-Term Deferred Income Taxes Other Liabilities Total Liabilities Stockholders' Equity Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Less Cost of Common Stock in Treasury Total Stockholders' Equity Total Liabilities and Stockholders' Equity October 31, 2014 October 30, 2015 128,203 2,868 840,447 486,262 28,898 90,579 1,577,257 1,125,824 592,512 83,072 10,184 185,961 1,307 857,256 451,909 37,707 97,090 1,631,230 1,287,703 643,100 112,735 11,042 77,902 517,798 1,034,053 1,629,753 -984,651 645,102 4,033,951 75,634 463,716 1,042,988 1,582,338 -949,573 632,765 4,318,575 443,854 162,502 600,875 26,017 471,173 1,704,421 950,035 219,261 149,143 3,022,860 334,022 131 553,737 36,010 442,839 1,366,739 1,706,933 240,919 148,975 3,463,566 59,220 458,409 1,907,001 -19,670 -1,393,869 1,011,091 4,033,951 59,220 474,044 2,209,628 -195,498 -1,692,385 855,009 4,318,575 Source: The Valspar Corporation, United States Securities and Exchange Commission, Washington, D.C. 20549: Form 10K, 4, accessed May 11, 2016, http://d1lge852tjjqow.cloudfront.net/CIK-0000102741/4f6303ed-9532-4792-be80c781a53510d6.pdf. This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 8 9B16N063 EXHIBIT 4: SHERWIN-WILLIAMS INCOME STATEMENTSRECLASSIFIED 12 MONTHS (IN US$ MILLION) December 25, 2013 Revenue Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses EBITDA Depreciation Net Interest Expense Other (Income) Expense, Net Earnings Before Taxes Income Tax Expense Net Income December 31, 2014 December 30, 2015 10,186 5,400 4,786 3,468 11,130 5,816 5,313 3,682 11,339 5,609 5,730 3,914 1,318 169 -54 -29 1,067 314 753 1,631 170 -56 -146 1,258 392 866 1,817 171 -57 -41 1,548 494 1,054 Note: EBITDA = earnings before interest, taxes, depreciation, and amortization Source: Data from S&P Global Market Intelligence, S&P Capital IQ Platform, accessed May 18, 2016, http://bit.ly/28PlQz3 (login required). This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 9 9B16N063 EXHIBIT 5: SHERWIN-WILLIAMS BALANCE SHEETS (IN US$ MILLION) Assets Cash and Equivalents Accounts Receivable Inventory Deferred Tax Assets, Current Other Current Assets Total Current Assets Gross Property, Plant, and Equipment Accumulated Depreciation Net Property, Plant, and Equipment Long-Term Investments Goodwill Other Intangibles Other Long-Term Assets Total Assets Liabilities Accounts Payable Accrued Expenses Short-Term Borrowings Current Portion of Long-Term Debt Current Income Taxes Payable Other Current Liabilities Total Current Liabilities Long-Term Debt Pension and Other Post-Retirement Benefits Other Non-Current Liabilities Total Liabilities Preferred Stock, Convertible Preferred Stock, Other Total Preferred Equity Common Stock Additional Paid In Capital Retained Earnings Treasury Stock Comprehensive Income and Other Total Common Equity Total Equity Total Liabilities and Equity December 31, 2013 December 31, 2014 December 31, 2015 745 1,098 971 104 241 3,159 2,741 -1,720 1,021 211 1,179 313 500 6,383 41 1,131 1,034 109 253 2,567 2,835 -1,814 1,021 224 1,158 289 447 5,706 206 1,114 1,019 88 232 2,659 2,923 -1,882 1,042 189 1,143 255 503 5,792 998 809 97 503 80 42 2,529 1,122 320 1,042 824 679 3 87 45 2,681 1,123 331 1,158 806 39 3 81 54 2,142 1,920 298 637 4,608 40 -40 0 113 0 1,774 -1,639 1,527 1,775 1,775 6,383 575 4,710 0 0 0 115 0 2,425 -3,150 1,608 996 996 5,706 564 4,924 0 0 0 116 0 3,229 -4,220 1,743 868 868 5,792 Source: Data from S&P Global Market Intelligence, S&P Capital IQ Platform, accessed May 18, 2016, http://bit.ly/28Omv5z (login required). This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 10 9B16N063 EXHIBIT 6: PAINT AND COATINGS INDUSTRY FIRMS, DECEMBER 31, 2015 Company Name Axalta Coatings RPM International SherwinWilliams Akzo Nobel PPG Industries Valspar Summary Statistics Low Median High 10,028 Market Value of Equity (in US$ million) 6,564 7,603 5,517 2,086 4,760 628 12.1x 1.6x 3.3x 6.6x 1.33 23,632 21,669 1,963 11,339 1,817 13.0x 2.1x 1.1x 25.0x 0.90 20,428 32,371 17,223 28,107 3,205 4,264 16,477 15,340 2,253 2,632 9.1x 12.3x 1.2x 2.1x 1.4x 1.6x 12.6x 20.6x 1.23 1.22 7,941 5,894 2,047 4,392 729 10.9x 1.8x 2.8x 8.0x 1.24 7,603 15,228 32,371 5,517 11,894 28,107 1,963 2,646 4,264 4,077 8,050 16,477 628 1,331 2,632 9.1x 12.0x 13.0x 1.2x 1.9x 2.5x 1.1x 2.2x 4.1x 4.3x 10.3x 25.0x 0.90 1.23 1.33 Enterprise Value (in US$ million) Total Debt (in US$ million) Sales LTM (in US$ million) EBITDA LTM (in US$ million) 3,464 4,077 EV / EBITDA EV / Sales Debt / EBITDA EBITDA / Interest Beta 845 11.9x 2.5x 4.1x 4.3x N/A Note: LTM = last twelve months; EV = enterprise value; EBITDA = earnings before interest, taxes, and depreciation Source: Author's calculations, based on data compiled from S&P Global Market Intelligence, S&P Capital IQ Platform, accessed May 17, 2016, http://bit.ly/28Tmlvf (login required). EXHIBIT 7: CAPITAL MARKET INFORMATION Yields on U.S. Treasury Securities, January 29, 2016 3-Month Treasury Bill 0.33% 10-Year Treasury Bond 1.94% 20-Year Treasury Bond 2.36% 30-Year Treasury Bond 2.75% Average Returns on Treasury Securities and Common Stocks, 1926 to 2015 Treasury Bill 3.50% 10-year Treasury Bond 5.20% 20-year Treasury Bond 5.60% S&P 500 11.40% Source: Prepared by the author with Treasury yields data from S&P Global Market Intelligence, S&P Capital IQ Platform, accessed May 18, 2016, http://bit.ly/1RlHezB (login required). Historical returns were calculated by the author using data from \"CRSP Historical Indexes,\" Center for Research in Security Prices, accessed May 18, 2016, www.crsp.com/products/research-products/crsp-historical-indexes. EXHIBIT 8: SHERWIN-WILLIAMS BONDS, DECEMBER 2015 Maturity Date August 1, 2025 August 1, 2045 December 15, 2042 Security Type Corporate Debentures Corporate Debentures Corporate Debentures Seniority Senior Unsecured Senior Unsecured Senior Unsecured Coupon Rate Offer Date Issue Size (in millions) Current Price Yield-toMaturity S&P Rating 3.45 07/28/15 400.0 101.892 3.208 A 4.55 07/28/15 400.0 103.776 4.324 A 4.0 12/04/12 300.0 94.806 4.336 A Source: Prepared by the author with data from S&P Global Market Intelligence, S&P Capital IQ Platform, accessed May 18, 2016, http://bit.ly/28OoAyb (login required). This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 11 9B16N063 ENDNOTES 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of the Valspar Corporation, the Sherwin-Williams Company, or any of their employees. 2 The Valspar Corporation, United States Securities and Exchange Commission, Washington, D.C. 20549: Amendment No. 1 to Schedule 14a, Proxy Statement Pursuant to Section 14(A) of the Securities Exchange Act of 1934, May 13, 2016, 28, accessed May 17, 2016, http://d1lge852tjjqow.cloudfront.net/CIK-0000102741/71be9c4b-ca56-4486-abd8aca8d2efae49.pdf. Information regarding the actions and decision-making process of the board and top management, including direct quotations, was taken from this filing. The original firm that Hendrickson approached was never made public and was referred to only as \"Company 1\" in this filing. 3 Ibid., 26. 4 Ibid., 27. 5 Ibid., 26. 6 Ibid., 27. 7 Ibid. 8 Ibid. 9 Ibid., 28. 10 Ibid. 11 Ibid. 12 All currency amounts are in U.S. dollars unless otherwise specified. 13 The Valspar Corporation, op. cit. 14 S&P Global Market Intelligence, \"S&P Capital IQ Platform,\" accessed May 17, 2016, http://bit.ly/28Q9yYe (login required). 15 The Valspar Corporation, op. cit., 28. 16 The Valspar Corporation, op. cit., 28. 17 Ibid., 28. 18 Ibid., 29. 19 Ibid., 31. 20 Ibid., 29-30. 21 Sherwin-Williams, \"Sherwin-Williams to Acquire Valspar: Expanding Sherwin-Williams' Product Lines and Building a Global Platform for Growth,\" investor presentation, March 20, 2016, 5, accessed May 12, 2016, http://s2.q4cdn.com/148176307/files/doc_presentations/2016/SHW-VAL-Investor-Presentation.pdf. 22 \"Paint & Coating Manufacturing Report Summary,\" Hoovers, accessed May 25, 2014, www.hoovers.com/industryfacts.paint-coating-manufacturing.1089.html. 23 Sherwin-Williams, op. cit., 3. 24 Ibid., 4. 25 Ibid. 26 Ibid. 27 Sherwin-Williams, 2015 Annual Report, accessed, May 17, 2016, http://investors.sherwin-williams.com/pdf/annualreports/2015_annual_report.pdf. 28 Ibid. 29 Ibid. 30 Sherwin-Williams, \"Sherwin-William to Acquire Valspar,\" op. cit., 9. 31 Ibid. 32 John G. Morikis, March 21, 2016 Analyst Conference Call, accessed via Capital IQ transcript, May 15, 2016, http://bit.ly/28ZfONv (login required). 33 Sherwin-Williams, op. cit., 9. 34 Ibid., 9. 35 Ibid. 36 Ibid. 37 John G. Morikis, op. cit. 38 Jack Kaskey, \"Sherwin-Williams Deal for Valspar Raises Antitrust Concerns,\" Bloomberg, accessed May 15, 2016, www.bloomberg.comews/articles/2016-03-21/sherwin-williams-to-buy-valspar-in-9-3-billion-paint-deal-im2d9pzu. 39 Janet Cho, \"Sherwin-Williams Ends Its Pursuit of Consorcio Comex's Mexican Division,\" Cleveland Plain Dealer, April 6, 2014, accessed May 15, 2016, www.cleveland.com/business/index.ssf/2014/04/sherwinwilliams_ends_its_purs.html. 40 Ibid. 41 Andrew Noel and Tim Loh, \"PPG to Buy Mexican Paint Maker that Sherwin-Williams Failed with 2-3 Billion Comex Deal," Bloomberg, accessed May 9, 2016, www.bloomberg.comews/articles/2014-06-30/ppg-to-step-in-where-sherwin-failedwith-2-3-billion-comex-deal. 42 Jack Kaskey, op. cit. This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017. For the exclusive use of H. Wang, 2017. Page 12 9B16N063 43 Federal Trade Commission and Department of Justice, \"Hart-Scott-Rodino Annual Report: Fiscal Year 2014,\" accessed May 17, 2016, www.ftc.gov/system/files/documents/reports/federal-trade-commission-bureau-competitiondepartment-justice-antitrust-division-hart-scott-rodino.s.c.18a-hart-scott-rodino-antitrust-improvements-act1976/150813hsr_report.pdf. 44 \"Horizontal Merger Guidelines (08/19/2010),\" The United States Department of Justice, August 19, 2010, accessed May 12, 2016, www.justice.gov/atr/horizontal-merger-guidelines-08192010. 45 Ibid. 46 Ibid. 47 The Valspar Corporation, op. cit., 28. This document is authorized for use only by Haihua Wang in FBE432 F17 Corporate Financial Strategy taught by Weinstein, University of Southern California from August 2017 to December 2017