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Mexico Blocks Sherwin-Williams $2.3 Billion Comex Deal

Sherwin-Williams Co. (SHW)’s $2.34 billion bid to acquire Mexican paint maker Consorcio Comex SA was rejected by Mexico’s antitrust regulator, which said the combined company would be able to set artificially high prices.

The Federal Competition Commission voted 3 to 2 to block the takeover, Cleveland-based Sherwin-Williams said today in a statement. The company is pursuing “several paths” to get approval including an “internal appeal” to the regulator, Chairman and Chief Executive Officer Christopher M. Connor said on a conference call. The shares fell the most in four years.

Sherwin-Williams, also a paint maker and the largest U.S. retailer of the product, is trying to double sales in Latin America. Connor said when the deal was announced in November that he was “confident” it would be approved because the companies had little overlap and that Sherwin-Williams had a “de minimis” share of the Mexican house-paint market.

Sherwin-Williams “hopes to be able to address the commission’s concerns, but the completion of this acquisition remains uncertain,” Ivan Marcuse, a Cleveland-based analyst at KeyBanc Capital Markets Inc. who rates the shares hold, said today in a note.

Sherwin-Williams, which also reported lower-than-expected second-quarter earnings and revenue, fell 8.3 percent to $167.94 in New York, the biggest decline since January 2009.

Photographer: Daniel Acker/Bloomberg

Paint color swatches sit on display at a Sherwin-Williams Co. store in Princeton, Illinois. Close

Paint color swatches sit on display at a Sherwin-Williams Co. store in Princeton, Illinois.

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Photographer: Daniel Acker/Bloomberg

Paint color swatches sit on display at a Sherwin-Williams Co. store in Princeton, Illinois.

‘Anti-Competitive Practices’

The combined company would have a market share of 48 percent to 58 percent, depending on the product, the regulator said in a statement today. That would be as much as 10 times the share of its closest competitor.

“It would have been able to set artificially high prices and commit anti-competitive practices to the detriment of consumers,” the commission said.

Sherwin-Willams said company lawyers are meeting with competition commissioners in Mexico today. Connors said he spoke with Marcos Achar Levy, the CEO of closely held Comex, who confirmed an “equal resolve” to secure regulatory approval.

Rocio Llano, a Comex spokeswoman, didn’t immediately respond to an e-mail seeking comment on today’s ruling.

An appeal must be filed within 30 days, Connor said on the call. Once the commission’s chairman accepts the request, a decision is due in no more than 60 working days. He declined to comment on what market share the commission might accept.

Sherwin-Willams said today second-quarter earnings were $2.54 a share, excluding a Brazilian import duty. That trailed the $2.57 average of 17 analyst estimates compiled by Bloomberg. Sales gained 5.5 percent to $2.71 billion, missing the $2.75 billion average estimate.

The company forecast third-quarter profit will rise to a range of $2.55 to $2.65 a share, less than the $2.74 average of 19 estimates.

The Comex purchase price includes Sherwin-Williams’ assumption of the company’s debt.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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