Wall Street Breakfast: Sherwin-Williams Widens Footprint With Mega Paint Deal

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by: Wall Street Breakfast
Wall Street Breakfast
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Sherwin-Williams has agreed to acquire rival U.S. paint company Valspar (NYSE:VAL) in an all-cash deal valued at about $9.3B, or $11.3B including debt. "The combination expands our brand portfolio, significantly strengthens our Global Finishes business, and extends our capabilities into new geographies and applications," Sherwin-Williams (NYSE:SHW) CEO John Morikis said in a statement. The merged company would have pro forma 2015 revenues of $15.6B, adjusted EBITDA of $2.8B and about 58,000 employees. VAL +28.9% premarket.

Economy

U.S. inflation will likely accelerate in coming years and move toward the Federal Reserve's 2% target, Richmond Fed President Jeffrey Lacker said during a speech at the Banque de France in Paris. "Inflation has been held down recently by two factors, the falling price of oil and the rising value of the dollar...after the price of oil bottoms out, I would expect to see headline inflation move significantly higher." Lacker, who doesn't vote on monetary policy this year, dissented in September and October in favor of an earlier liftoff of interest rates from zero - a move finally made by the Fed in December.

Will Donald Trump win the GOP nomination? Goldman Sachs thinks so. "Trump must win about 65% of the remaining pledged delegates. While this seems like a high bar, the delegate allocation methods used in the later contests make it attainable...There is a clear possibility that the dynamic could change again, but for now it appears to be a three-way race in which Mr. Trump has the advantage."

PBOC Governor Zhou Xiaochuan sounded a warning about China's corporate debt levels over the weekend, stating that the country must develop more robust capital markets. Lending as a share of GDP, especially corporate lending as a share of GDP, is too high," Zhou Xiaochuan told the China Development Forum, adding that a highly leveraged economy is more prone to macroeconomic risk. Earlier this month, Moody's warned it may downgrade China's sovereign rating, a sign of increasing investor concern about Beijing's rising debt and falling foreign exchange reserves.

Another day, another missile. North Korea fired multiple short-range projectiles into the sea off the peninsula's east coast today which were said to have a range of approximately 200 kilometers. "North Korea has launched 15 different missiles on four different dates since firing the long-range missile on Feb. 7," South Korean officials stated. The launches came as Pyongyang condemned the ongoing annual South Korean-U.S. military drills that it sees as an invasion rehearsal.

Marking yet another sharp turn in politics Down Under, Australian Prime Minister Malcolm Turnbull has warned he will dissolve parliament and call early federal elections if his reforms are not approved just six months into the job. His decision reflects increasing frustration with crossbenchers, or senators from minor parties, who have repeatedly blocked key legislation that the ruling Liberal Party deems essential for the economy.

Sterling was the biggest mover among major currencies overnight, sinking more than half a percent on concerns of a deepening split in the U.K.'s ruling Conservative party. Currency dealers said there was concern that the resignation of "Brexit" supporter Iain Duncan Smith from the Cabinet showed Prime Minister David Cameron may struggle to hold the bulk of the party together in favor of an "In" vote in June. British pound -0.6% to $1.4392.

Greece and its creditors ended talks on Sunday without reaching an agreement on terms attached to a bailout, adding pressure to an economy struggling under capital controls and the arrival of more than 1M refugees in the past 15 months. Discussions to unlock more bailout funds have dragged on since last August due to differences over fiscal targets, pension cuts and tax reforms. EU and IMF inspectors will now return to Athens on April 2 following a break for Catholic Easter, dashing hopes that a review could be concluded by the end of March.

A controversial and ambitious migrant deal agreed between the European Union and Turkey also went into effect yesterday. Under the pact, migrants arriving in Greece will be sent back once they have been registered and their individual asylum claim processed. In return, the EU will take in up to 72K refugees directly from Turkey and reward it with some €6B ($6.8B) aimed at improving the lives of 2.7M Syrian refugees currently living in the country.

It's not likely a wave of oil bankruptcies will lead the U.S. economy into recession, Michelle Meyer, U.S. economist at BofAML, said in a research note. "It is important to note that if defaults rise due to non-macro events – which means without being triggered by a recession – there seems to be somewhat limited feedback into the economy." Meyer also doesn't see signs that oil-sector fears are leading to a broader tightening in credit markets.

Stocks

Starwood Hotels has signed an agreement to manage three prominent hotels in Havana, marking the first time since the 1959 revolution that a U.S. hospitality company has been allowed to operate in Cuba. The multi-million dollar investment comes as President Obama pays a historic visit to the island. Starwood (HOT) received an authorization from the U.S. Treasury Department last week to begin operating hotels in Cuba - something that would have previously been prohibited under the longstanding economic embargo.

The U.S. Supreme Court will hear arguments today in a case that will test the limits of the Racketeer Influenced and Corrupt Organizations Act, a case that has serious implications for American corporate liability. More than two dozen European countries have sued RJR Nabisco, now R.J. Reynolds (NYSE:RAI) and Nabisco (NASDAQ:MDLZ), over an alleged international money laundering scheme that used drug money to buy tobacco. The question for the justices, who are generally skeptical of suits based on activities outside the U.S., is whether RICO applies to conduct abroad.

Alibaba is set to announce that transaction volume on its sites hit 3T yuan ($463B) in the current fiscal year, sources told WSJ. That would represent a doubling in the past three years for Alibaba (NYSE:BABA), whose executives have said it could reach 3T yuan in gross merchandise volume by 2016. As a measure of the total value of third-party sellers' transaction - and vastly distinct from revenue - GMV is closely tracked by investors because it shows how fast an e-commerce company is growing relative to its competitors.

Taiwan's Foxconn is seeking to reduce the amount it pays for Sharp (OTCPK:SHCAY) due to concerns about potential liabilities and future earnings. According to the Yomiuri newspaper, Foxconn's (OTC:FXCOF) investment in new equity to be issued by the embattled Japanese firm may shrink by 10%-20% from the originally agreed ¥489B ($4.4B). The Taiwanese company is also in talks with Sharp’s main banks to reduce interest rates on ¥510B in credit lines and loans due at the end of March.

The U.S. government plans to temporarily lift trade sanctions against China's ZTE Corp. (OTCPK:ZTCOY), easing a source of tension between Washington and Beijing. Details of the commitments are expected to be published this week in the Federal Register. The U.S. slapped trade sanctions on the telecommunications supplier earlier this month, citing evidence ZTE violated sanctions on exporting American technological goods to Iran and other nations.

Facebook's Mark Zuckerberg held a rare meeting with China's propaganda chief on Saturday, as part of a charm offensive in one of the few markets where the social network cannot be accessed. According to the Xinhua News Agency, Liu Yunshan voiced hopes for Facebook (NASDAQ:FB) to share its experience with Chinese companies to help "Internet development better benefit the people of all countries." Zuckerberg has long been courting China's leaders in a so-far futile attempt to access the country with the world's largest number of Internet users - 668M as of last year.

A passenger jet run by Flydubai crash-landed at Rostov-on-Don airport in southern Russia on Saturday, killing all 62 people aboard. According to various reports, the Boeing 737-800 (NYSE:BA) was making its second or third attempt to land in high winds when the tip of a wing hit the ground about 250 meters short of the runway, causing it to catch fire. While air-accident investigators have begun to extract information from the plane's black boxes, the devices were badly damaged and could take up to a month to decode.

Saudi Aramco wants to buy more U.S. refining and chemical plants once the break-up of its Motiva joint venture with Royal Dutch Shell (RDS.A, RDS.B) is complete, Reuters reports. Any potential acquisition targets are not yet known, but Aramco clearly seeks to expand its footprint in major markets, helping guarantee demand for its crude oil exports amid intensifying global competition.

On an inexorable march across the hemisphere, the Zika virus has begun spreading through Puerto Rico, now the United States' front line in a looming epidemic. A quarter of the island's 3.5M people will likely get the Zika virus within a year, according to the Centers for Disease Control and Prevention, and eventually 80% or more may be infected. The territory's first Zika case was confirmed in December, and the governor declared a health emergency on Feb. 5. Related tickers: SNY, INO, AEMD, XON, CEMI, BCRX, TMO

U.S. gene-testing company Affymetrix has rejected a $1.5B bid by Origin Technologies, standing by a previous $1.3B merger deal with Thermo Fisher (NYSE:TMO). "Origin appears to be a newly-formed shell entity with no assets of which Affymetrix is aware, and whose sole source of funding for the proposed transaction...is in potential debt commitments," the company said in the statement. Origin, made up of a group of former Affymetrix (NASDAQ:AFFX) executives, made its offer on Friday. AFFX -3.1% premarket.

Telecom Italia has confirmed it is in advanced talks with CEO Marco Patuano over the terms of his departure after reports at the weekend suggested he was about to quit. According to sources, Patuano clashed over strategy with other directors who wanted the operator to be more aggressive about cutting costs. Telecom Italia (NYSE:TI) Chairman Giuseppe Recchi is set to take over his role on an interim basis.

Ending his 16-year reign at the helm of the company, Axa (OTCQX:AXAHY) Chairman and Chief Executive Officer Henri de Castries is leaving earlier than expected, handing over the CEO post to AXA Germany head Thomas Buberl. Deputy Chief Executive Denis Duverne will replace Castries as chairman after his retirement in September. The move splits the top jobs at France's largest insurer and brings in fresh management to implement a new strategic plan.

BMW is taking its push into self-driving vehicles to its factory floors, testing suitcase-size robotic trolleys as part of an automation drive that will help cut costs by 5% per car annually. In a project started this month at BMW's (BAMXY) logistics center in Germany, the vehicles autonomously find the desired parts container, slide under it and transport it to the packing area. The program is part of a broader effort to squeeze out several hundred million euros in costs in the coming years to fund the development of self-driving features for its cars.

Apple is expected to introduce a new version of its smallest current iPhone during an event at its Cupertino headquarters today, as the tech giant grapples with slowing growth of its flagship product. The successor to the iPhone 5s (called the SE or 5SE) will likely include an upgraded processor, improved camera and capability to use Apple Pay. In the fiscal first quarter ended in December, iPhone sales rose 0.4% - its slowest rate of growth since Apple (NASDAQ:AAPL) introduced the device in 2007. Analysts also forecast sales to fall for the first time in the current quarter.

Today marks the 10th anniversary of Twitter, the social networking site that brought about hashtagging, condensing thoughts into 140 characters or less, and countless celebrity spats. Although there are reasons to party, analysts and investors still have a hard time valuing the company, due to concerns about user retention, product development, revenue turbulence, and management direction. Twitter (NYSE:TWTR) shares are down almost 60% since the company's IPO in November 2013.

Today's Markets

In Asia, Japan closed. Hong Kong flat at 20684. China +2.2% to 3019. India +1.3% to 25285.
In Europe, at midday, London +0.2%. Paris flat. Frankfurt +0.9%.
Futures at 6:20, Dow +0.2%. S&P +0.1%. Nasdaq +0.2%. Crude -0.3% to $41.02. Gold -0.7% to $1245.10.
Ten-year Treasury Yield flat at 1.88%

Today's Economic Calendar

2:45 Fed's Lacker: Central bankers outlook
8:30 Chicago Fed National Activity Index
10:00 Existing Home Sales
12:30 PM Fed's Lockhart speech
8:30 PM Fed's Bullard: Economic Outlook

Companies reporting earnings today