Its announcement and related court complaint reveals new details about what went on behind the scenes as Sherwin-Williams worked to comply with conditions imposed by Mexican antitrust regulators.
CLEVELAND, Ohio -- Cleveland paint company Sherwin-Williams Co. quietly but officially ended its 18-month pursuit of the Mexican division of rival Consorcio Comex, S.A. de C.V., because a March 31 deadline passed without a deal.
Its announcement and related complaint about the sellers, however, reveals new details about what went on behind the scenes as Sherwin-Williams worked to comply with conditions imposed by Mexican antitrust regulators (Comision Federal de Competencia) who had twice voted against the $2.34 billion acquisition.
Sherwin-Williams said it sent a notice on Thursday to the sellers, Avisep, S.A. de C.V., and Bevisep, S.A. de C.V., that it was effectively terminating the stock purchase agreement it made on Sept. 16 to acquire Comex's Mexican operations. Sherwin-Williams bought the smaller U.S. and Canadian divisions for $165 million in September.
The terms of the agreement said either side could end the agreement if the acquisition did not close on or before March 31, 2014, and neither party was in "material breach" of the agreement. Avisep and Bevisep own all the issued and outstanding shares of Comex.
Sherwin-Williams also filed a complaint in New York's Supreme Court seeking a declaratory judgment against Avisep and Bevisep, asking the court to declare that "Sherwin-Williams had used commercially reasonable efforts as required under the stock purchase agreement and has not breached the agreement."
That's because on April 1, the sellers notified Sherwin-Williams that they believed the company had violated its obligations to use such commercially reasonable efforts to close the deal.
Sherwin-Williams received the sellers' notice "one week after Consorcio Comex's Chief Executive Officer informed Sherwin-Williams General Counsel that Sherwin-Williams had 'complied 100 percent with the remedies asked' by the Mexican Antitrust Commission and that the Mexican Antitrust Commission was taking a 'crazy' and 'stubborn' position regarding the terms under which the Mexican Antitrust Commission would authorize the transactions outlined in the agreement," according to court documents.
Even since the two sides entered into the original stock purchase agreement on Nov. 9, 2012, Sherwin-Williams said it "has been using commercially reasonable efforts to obtain the required consents and clearance from the Mexican Antitrust Commission by working in good faith with the Defendant Sellers and cooperating with the Mexican Antitrust Commission," according to the complaint.
But the Mexican Antitrust Commission voted on two separate occasions against the transaction. After the second, unanimous rejection in November 2013, the Commission told Sherwin-Williams that "it needed to pursue certain remedies, including potentially divesting a portion of its business, to gain the Mexican Antitrust Commission's authorization of the transactions."
From December 2013 through January 2014, Sherwin-Williams "hired an investment banker, set up a data room, and solicited and vetted bids to sell a portion of its Mexican operations to a third party." It even drew up a letter of intent to sell a portion of its operations to a third party, on the condition that the Mexican authorities grant approval of the Comex deal. But the approval never came.
On March 24, 2014, Marcos Achar Levy, chief executive of Consorcio Comex, sent an email to Catherine Kilbane, Sherwin-Williams' general counsel, saying that the Mexican Antitrust Commission was "stubbornly insisting" on certain conditions and that Sherwin-Williams had "complied 100%" with the remedies asked.
A week later, Sherwin-Williams received the notice of breach letter from the sellers. On April 3, Sherwin-Williams responded via overnight mail "rejecting all the allegations in such notice."
The company noted in court documents that "an actual controversy exists between Sherwin-Williams and the Seller-Defendants, which is justifiable in character, and speedy relief is necessary to preserve the parties' respective rights." The complaint did not elaborate.
In addition to the court's judgment in favor of Sherwin-Williams' commercially reasonable efforts, the company is also seeking attorneys' fees, costs and expenses incurred in pursuing the action, as well as a trial by jury.
Sherwin-Williams said in a statement that it would have further comment at its first quarter 2014 conference call at 11 a.m. on April 17.
By Friday afternoon, Sherwin-Williams' shares had dropped by $6.61 per share, to $193.89. That's down 3.3 percent from Thursday's close of $200.50.