This case study discusses a potential strategic combination of Valspar Corporation and Sherwin Williams. The company's board and senior management realized that two companies' collaboration would be beneficial to each other. However, as several questions remain and the two companies find it best to answer these questions so as not to waste resources.
Harvard Business Review (W16751-PDF-ENG)
November 17, 2016
Case questions answered:
- Why is Hendrickson motivated to explore a business combination with an industry competitor? Similarly, why did Sherwin Williams intermittently contact Valspar Corporation over the past three decades to indicate an interest in exploring a business combination?
- Is an offer price above $106 per share in the best interest of Sherwin Williams stockholders, based on your estimate of the stand-alone value of Valspar and the projected synergies? In your opinion, what maximum price could be justified in a bidding contest?
- What is your opinion about the likelihood that antitrust regulators will eventually block the deal? Are your concerns substantial enough that it impacts your recommendation regarding whether to proceed with an offer to acquire Valspar?
- If Sherwin Williams decides to proceed with an offer, can you provide any suggestions as to how the merger agreement can be structured to avoid any problems that a potential challenge from the regulators might create?
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A "Compelling and Pre-emptive" Offer for the Valspar Corporation Case Answers
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Introduction – A “Compelling and Pre-emptive” Offer for the Valspar Corporation Case Study
This case report discusses a potential strategic combination of Valspar Corporation and Sherwin Williams. The company’s board and senior management realized that the two companies’ collaboration would be beneficial to each other.
However, as several questions remain, the discussions are analyzed below.
When a company combines with another firm and operates as a single legal entity, it may then have the opportunity to gain access to a broader market and customer base, decrease its outside competition, and achieve economies of scale at the same time.
In this case, Hendrickson is motivated to explore a business combination with an industry competitor so that Valspar would gain more market share while better utilizing its resources caused by synergies.
With the better utilization of resources, Valspar Corporation would then avoid all unnecessary costs. In doing so, the corporation would have lower selling, general, and administrative cost, raw material purchasing cost, research and development expense, and manufacturing, distribution, and inventory management costs.
Moreover, the increase in the corporation’s cost efficiency within manufacturing allows the company to experience reductions in expenses (of $26 million) with an annual savings of $144 million. With this being said, Valspar Corporation would then…
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