Sherwin-Williams announced it intends to acquire its paint-industry rival Valspar in a $11.3 billion deal, according to MarketWatch managing editor Tim Rostan. The transaction is expected to close in the first quarter of 2017.
Fitch Ratings promptly placed Sherwin-Williams on 'Rating Watch Negative' following the announcement, according to a news release. The $11.3 billion deal will include the assumption of $2 billion of debt. Sherwin-Williams plans to fund the transaction through a combination of cash, liquidity available under its existing facilities and new debt.
While Fitch views the transaction as strategically positive for Sherwin-Williams, the acquisition will likely result in a multi-notch downgrade of the company's ratings given the large amount of debt to be incurred in the acquisition and the resulting increase in leverage. Fitch anticipates that the company's Issuer Default Rating may be downgraded to low investment grade.