Latin America Reports

Sherwin-Williams Deal for Comex Must Change

By Charles W. Thurston, Latin America Correspondent | August 13, 2013

Blocked in its initial attempt to acquire Mexico’s leading paint producer Comex for $2.3 billion, Sherwin-Williams is “aggressively” pursuing alternative routes to the purchase, CEO Christopher M. Connor has vowed. The Mexican anti-monopoly agency, Comisión Federal de Competencia (CFC), finally ruled on July 18 in a three-to-two vote split against the acquisition announced November 12. Meanwhile, the CFC is headed into vacations and possible membership restructuring.

The CFC decision was based on the arguments that the deal would leave S-W with a majority control – about 60 percent – of the Mexican paint and coatings industry, and that it would be six to 10 times larger than its closest competition. The CFC has not made its 144-page decision public yet. S-W has 30 working days to respond to the CFC position, following the delivery of some 20,000 pages of documents to the commission supporting the initial deal.

S-W or Comex could sell off some assets to make the deal more palatable to the CFC, which is concerned about the viability of its paint industry, including some 375 manufacturers and some 15,000 direct points of sale across the country, according to the national trade group Asociacion Nacional de Fabricantes de Pinturas y Tintas (Anafapyt). In contrast, Comex’ network of 3,200 points of sale are operated by some 875 concessionaires.

  In an earlier U.S.-Mexican merger proposal, a sell-off was necessary. Beer brewers ABI and Grupo Modelo spun off some assets to Constellation Brands to make the $20 billion deal palatable to the U.S. Justice Department earlier this year.

Comex CEO Marcos Achar, reacting to the CFC decision, said that a negative decision by the CFC would affect $1 billion worth of investments his company has already made. He clarified that his company’s national paint and coatings market share amounts to only 40 percent with all segments combined. The company’s architectural segment share is approximatley 53 percent, wood finishes is about 30 percent, waterproofing is about 30 percent, and industrial and marine is about 18 percent, Achar noted in local interviews following the CFC decision. S-W only holds about six percent of the Mexican architectural segment, which seems to be the focus of the CFC’s resistance.

Comex produces paints and coatings in 16 North American locations, including eight in Mexico, five in the United States and three in Canada, through its acquisition of PPI several years ago. Out of the company’s $935 million revenues, 65 percent came from architectural segment sales, 25 percent from industrial sales and the remainder from all other segments. Comex enjoys something of a sweetheart relationship with Mexico’s national oil company Pemex, for which it has helped develop paint and coatings quality standards that are utilized at times as a de facto national standard.

Comex also exports to the Caribbean, where it has been building a network of more than 90 stores. Among countries in its network there are: Belize; Costa Rica; El Salvador; Guatemala; Honduras; Nicaragua and Panama.

Achar also complained that the CFC, which will go into a two-week vacation period, could change its member composition upon return, and that changes to the national anti-monopoly law also are pending that could affect the case. The current head of the CFC is Eduardo Pérez Motta, a staunch pro-competition diplomat who has served as Mexico’s representative to the World Trade Organization and who led the European Union-Mexico free trade agreement negotiations. Pérez earned a Masters in economics at the University of California at Los Angeles, and carried out doctorate studies there.