Will PPG Make It South of the Border?
Two months ago, this space featured a piece on the frustrations Sherwin-Williams faced trying to complete its acquisition of the Mexican holdings of Consorcio Comex, the architectural and industrial coatings company with headquarters in Mexico City, Mexico. Actually Sherwin-William’s original proposed acquisition of Comex was comprised of two distinct proposals.
The first was aimed to acquire Comex properties north of the Mexican border, featuring the substantial holdings of the company’s U.S. and Canadian operations based on the 2004 acquisition of Professional Paint Inc. (PPI), based in Lone Tree, CO. At the time PPI’s holdings included several manufacturing facilities plus regional retail paint chains primarily covering the Western US and Canada. The second aspect of the proposed Sherwin-Williams/Comex deal focused on the rich Mexican properties of Comex. In many ways these complex Mexican holdings could be compared to those of Sherwin-Williams north of the border.
The first part of the deal went through smoothly, as Sherwin-Williams expanded its already enviable U.S.-Canadian portfolio dynamically. Suddenly S-W was overseeing historically and currently prestigious chains including Frazee Industries, Kwal Paint, Parker Paint Manufacturing, Color Wheel in the U.S. and the mighty General Paint of Western Canada.
The purchase of the vast Mexican holdings of Comex however became embroiled in a holdup by Mexico’s Comisión Federal de Competencia Económica (CFECO). In English, this translates to the Federal Economic Competition Commission (FECC), a Mexican state agency somewhat similar to our Federal Trade Commission. Ultimately CFECO voted the deal down, twice. The commission noted that the consummation of the transaction would result in a US giant purchasing the largest paint company in Mexico, which could diminish the ability of smaller companies to compete.
Essentially this was seen by the Mexican government as blocking a case of restraint of trade. After a series of appeals, Sherwin-Williams decided to abandon its Mexican acquisition. The negotiations had passed a key date in the acquisition contract which essentially forced Sherwin-Williams to withdraw its offer.
Despite these events, which essentially saw the federal government of Mexico twice rejecting the merger while events brought legalities past the stated, formal drop dead date of the contract, Comex attempted to bring Sherwin-Williams to an arbitration hearing before the International Chamber of Commerce. Comex alleged that Sherin-Williams had not demonstrated sufficient effort in pursuit of the deal.
No doubt Sherwin-Williams originally saw the deal as a ticket to an imposing positon within the grand, lucrative and complex Mexican market. Perhaps more intriguing, were the likely, considerable springboard effects S-W might enjoy for the many Latino interests the company could more easily pursue, well south of the Mexican border.
Now word comes out that yet another American paint and coatings force, PPG, has emerged with an accepted $2.3 billion bid to acquire Consorcio Comex. Recently PPG has enjoyed a considerable series of healthy, growing financials. Additionally, lately the company has been of bit of an acquisition spree. Early last month PPG announced its acquisition of the Homax Group, a supplier of repair products for decorative ceiling and wall textures.
Weeks later, PPG followed this with the acquisition of Masterwork, an independent architectural paint distributor with 13 stores populating Western Pennsylvania, Ohio and New York. These acquisitions were made possible by PPG’s long-term, cash rich state along with its increasingly investor/investment friendly quarterly financial reports.
Now one must wonder if the presumptions/fears of Mexico’s governmental agencies have changed. Sherwin-William’s proposed acquisition of Comex Mexican properties was in large part quashed by fears of restraint of trade by Mexico’s many independent distributors and retailers. Why would PPG be viewed any less differently?
Doing business in Mexico can involve very different components than conducting affairs north of its border. Pressures emanating from corruption can be considerable, with little help from weak governmental agencies on many levels. Walmart is still reeling from the bribery scandal which emerged from managing its Mexican holdings just two years ago. It is believed that at least some Walmart executives knew about related problems back in 2005.
Perhaps it was the unique problems facing companies doing business in Mexico which drove Sherwin-Williams to willingly abandon its Mexican aspirations, as contractual out-dates emerged. This even as Comex threated to sue S-W for too easily abandoning the Mexican segment of the acquisition.
International mergers and acquisitions must meet the many complex standards and regulations put in place by host governments. Democracies tend to give voice to potentially affected parties whose interests are essentially represented by appropriately appointed governmental agencies.
Sherwin-Williams failed to meet the smell test of related businesses in Mexico and was ultimately denied its petition by the agency put in place to decide issues of trade for Mexicans. One must wonder why PPG would be treated any differently.