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The Valspar Corporation

The Valspar Corporation

1101 Third Street South
Minneapolis, Minnesota 55415-1211
U.S.A.
Telephone: (612) 332-7371
Fax: (612) 375-7723
Web site: http://www.valspar.com

Public Company
Incorporated:
1832 as Valentine and Company
Employees: 7,540
Sales: $2.71 billion (2005)
Stock Exchanges: New York
Ticker Symbol: VAL
NAIC: 325510 Paint and Coating Manufacturing; 325211 Plastics Material and Resin Manufacturing

The Valspar Corporation is the world's sixth largest manufacturer of paints and coatings, a business it has engaged in for more than two centuries. Its sterling reputation was built on the Valspar varnish, which was unveiled in 1906 as the first coating for wood that retained its clear finish when exposed to water. Nonetheless, until formative mergers with Rockcote Paint Company in 1960 and Minnesota Paints, Inc. in 1970, Valspar was a relatively small manufacturer with limited possibilities for growth. During the last three decades of the 20th century and the beginning years of the 21st, however, it rose to Fortune 500 status and Wall Street favor through an aggressive acquisition campaign in which dozens of smaller paint and coatings companies entered the Valspar fold.

The company's product line is diverse, encompassing consumer interior and exterior paints, stains, primers, and varnishes sold through home improvement, mass-merchant, and other retailers; automotive refinish paints; industrial coatings for building products, appliances, automotive applications, furniture, and other areas; and coatings and inks for rigid packaging containers, particularly tin and aluminum cans. Valspar operates more than 50 manufacturing plants in the United States, Canada, Mexico, Brazil, the United Kingdom, France, Germany, Ireland, the Netherlands, Switzerland, Australia, China, Malaysia, Singapore, and South Africa; is involved in joint ventures in China, South Africa, and Japan; and markets branded product lines that include American Tradition, Cabot, De Beer, House of Kolor, McCloskey, Mr. Spray, Plasti-Kote, Signature Colors, Tempo, and Valspar. In the mid-1990s Valspar began an aggressive international expansion, which over the following ten years increased its overseas sales from 3 percent to more than 30 percent of overall sales.

19TH-CENTURY ORIGINS

In 1820 two businessmen in Cambridge, Massachusetts, began the first commercial production of varnishes in the United States, a business that was to become Valspar's forte for more than a century. Fourteen years earlier, on Boston's Broad Street, Samuel Tuck opened a paint dealership that led directly to the formation of Valspar. Tuck's business, Paint and Color, changed names and hands several times during the next 50 years. With Augustine Stimson's assumption of the Broad Street business and Lawson Valentine's incorporation of Boston varnish manufacturer Valentine and Company in 1832, the formation of Valspar was made possible. These two businesses soon merged to become Stimson & Valentine. In 1855 Otis Merriam joined Stimson & Valentine as the other principal owner. Merriam, interestingly, had for the previous six years been associated with the original varnish plant in Cambridge. Although popularly known as "varnish manufacturers," these men also conducted an import and retail trade in paints, oils, glass, and beeswax. Around 1860 Valentine's brother, Henry, joined the firm. By 1866, both Stimson and Merriam had retired and left the Valentine brothers the sole partners in the business, which was then renamed Valentine & Company.

Shortly thereafter, Lawson Valentine made a singularly important decision: he hired a chemist at a time when there were fewer than 100 such specialists in the country, a first for the American varnish industry. More important than the creation of the position, however, was the candidate selected for the job. That person was Charles Homer, brother of famed New England artist Winslow Homer and an expert craftsman in the mixing of varnishes. According to the Valspar History, he "made varnishes so perfect they could be poured from the can to the back or side of a carriage. Varnishes that flow out smoothly and evenly, dry perfectly." Following Lawson's relocation of the business to New York City in 1870, the same year in which the firm acquired Minnesota Linseed Oil Paint Company, Valentine & Company began to specialize in vehicle finishing varnishes that were competitive with widely prized English varnishes. At the time, the company operated a West Coast office with Whittier, Fuller & Company (later renamed W.P. Fuller & Company) as its representative. In 1878 Valentine & Company entered the Midwest market via a Chicago branch office. Four years later Henry Valentine succeeded his brother as president and the company renewed its Boston ties by reopening a plant there. By 1900, Valentine & Company had established additional operations in Pennsylvania as well as Paris, and had won dozens of international medals for its high-quality varnishes.

EARLY 20TH CENTURY: VALSPAR VARNISH

Lawson Valentine's grandson, L. Valentine Pulsifer, joined the company in 1903 after receiving his degree in chemistry from Harvard University. Working under Homer, Pulsifer was allowed to conduct experiments to discover why varnishes always turned white when exposed to water. From Homer's standpoint, the experiments would be edifying, though not otherwise profitable. Pulsifer believed, however, that the formula for a clear varnish existed; it simply had yet to be discovered. Three years later Pulsifer produced Valspar, the first clear varnish. Factory production began within two years, accompanied by promotional stunts designed to highlight the product's unique features. The first such exhibition involved a boiling water test at the Grand Rapids Furniture Show in 1908. The following year, at the New York Motor Boat Show, Valspar and eight of the best competing brands were applied to a submarine in alternating stripes; the vessel was then submerged and "gradually took on the appearance of a sea-going zebra, as the other varnishes whitened and Valspar remained clear."

COMPANY PERSPECTIVES

The Valspar Corporation's mission is to be the best coatings company in the world as judged by our customers, shareholders, employees, suppliers and the communities in which we operate. To become the best, we must: Be in the top five in global sales. Be #1 or #2 and a technology leader in each of our target markets. Be the leader in sales growth, earnings growth and return on investment. Be the lowest cost supplier through integrating technology and productivity improvements. Be environmentally responsible. Establish an accident-free work environment. And above all else, always act with integrity and comply with ethical codes of business conduct.

For the next few decades the company rode on the coattails of Valspar, supported by a strong national advertising campaign during the 1920s that made the product a household word with the tagline "the varnish that won't turn white." Pulsifer's invention, by virtue of its unparalleled appearance, durability, and ease of application, became a willing participant in a number of historic events. These included Admiral Robert Peary's expedition to the North Pole in 1909, U.S. involvement in World War I, and Charles Lindbergh's nonstop solo flight from New York to Paris in 1927. In each of these cases, Valspar finishes were employed as a protective coating on exposed wood surfaces. The varnishing of airplanes, in particular, became synonymous with Valspar during this period. The unveiling of new products and the acquisition of other paint and varnish manufacturers helped Valentine & Company to successfully weather the Great Depression. Among the new products were Super Valspar, Four-Hour Valspar, Val-Oil Clear, Valenite Clear, Valenite Enamel, Three V Floor Varnish, and French Formula Enamel. Among the acquired paint and varnish manufacturers were Con-Ferro Paint and Varnish Company and Detroit-Graphite Company (both acquired in 1930) and Edward Smith & Company (acquired in 1938).

FORMATIVE MERGERS: ROCKCOTE (1960), MINNESOTA PAINTS (1970)

Prior to the stock market crash, in 1927 the seed for another important predecessor to the Valspar Corporation was planted. It was in this year that Ralph J. Baudhuin entered the paint business as a salesman. Within a short time, he helped found the Baudhuin-Anderson Company in Rockford, Illinois. In 1932, the same year that Valentine & Company began to operate as a subsidiary of the newly formed Valspar Corporation, Baudhuin-Anderson became Rockford Paint Manufacturing Company. Four years later, after Ralph Baudhuin had gained sole ownership of the Illinois firm, Rockford Paint was renamed Rockcote Paint Company. During the 1950s Rockcote formed two important subsidiaries. The first, Color Corporation of America, was created to license and sell color systems and related equipment to paint manufacturers; the second, Midwest Synthetics, was formed to develop synthetic resins and resin-based varnishes. Like Valspar, Rockcote also grew by steady acquisitions during this period. By 1958, Baudhuin had taken special notice of Valspar; two years later, he succeeded in merging Rockcote with the old-line firm, then headquartered in Ardmore, Pennsylvania, and consolidated headquarters in Rockford.

KEY DATES

1806:
Samuel Tuck opens a Boston paint dealership called Paint and Color, which is later acquired by Augustine Stimson.
1820:
First commercial production of varnishes in the United States begins in Cambridge, Massachusetts.
1832:
Valentine and Company, a varnish manufacturer, is incorporated in Boston by Lawson Valentine, and soon merges with Paint and Color to become Stimson & Valentine.
1866:
Valentine and his brother, Henry, become sole partners in the business, renaming it Valentine & Company.
1870:
Company relocates to New York City and acquires Minnesota Linseed Oil Paint Company. 1882: Henry Valentine succeeds his brother as president.
1903:
Chemist L. Valentine Pulsifer, grandson of Lawson Valentine, joins company.
1906:
Pulsifer develops Valspar, the first clear varnish.
1932:
Valentine & Company begins operating as a subsidiary of newly formed Valspar Corporation.
1960:
Valspar merges with Rockcote Paint Company, with new headquarters in Rockford, Illinois.
1970:
Valspar merges with Minnesota Paints, Inc., with new headquarters in Minneapolis.
1973:
C. Angus Wurtele becomes company chairman.
1984:
Mobil Corporation's chemical coatings business is acquired for $100 million.
1994:
Company acquires Cargill Inc.'s resin products division, combines it with part of existing resin business, and spins it off to shareholders as McWhorter Technologies, Inc.
1995:
Richard Rompala becomes CEO
1996:
Four-stage acquisition of the Coates Coatings unit of TOTAL S.A. is begun.
1997:
Sales reach $1 billion.
1999:
The packaging coatings business of Dexter Corporation is acquired.
2000:
Valspar acquires Lilly Industries, Inc., for more than $1 billion.
2001:
Final stage of the Coates Coatings acquisition is completed.
2005:
William L. Mansfield succeeds Rompala as CEO.

Under the direction of the Baudhuin brothers, Ralph and F. J., the 1960s represented a heavy period of growth for Valspar. From the time of the merger until the end of the decade, the company averaged almost two acquisitions per year. Among the businesses purchased were Norco Plastics of Milwaukee, McMurtry Manufacturing of Denver, Keystone Paint and Varnish of Brooklyn, and the Trade Sales Division of Mobil Corporation. Fittingly, the company inaugurated the 1970s with even more phenomenal growth, this time through a historic merger. In June 1970, privately held Minnesota Paints, Inc., of Minneapolis, with annual sales of $24 million, merged with Valspar, with annual sales of $27 million; once again, Valspar's headquarters changed, this time to Minneapolis. The deal came at a propitious time, for the old Valspar had suffered a loss of $148,500 while Minnesota Paints had posted a gain of $200,000. Furthermore, Minnesota Paints boasted a strong, cash-heavy financial position to support further acquisitions. In the first fiscal year following the merger, earnings were $226,000 on revenues of $47.6 million. Within two years, Valspar's earnings had grown to $1.53 million and it was again ready to expand. The consecutive acquisitions of Phelan Faust Paint, Speed-O-Lac Chemical, Conchemco's Detroit Chemical Coatings, Elliott Paint and Varnish, and Conchemco's Coatings Division increased initial annual revenues by another $74 million during the decade.

1980S AND EARLY 1990S: ACQUISITIONS CONTINUE

Overseeing much of this expansion was C. Angus Wurtele, former president of Minnesota Paints and chairman of Valspar starting in 1973. At the time of Wurtele's succession approximately 60 percent of Valspar's sales came from its consumer business; the remainder came from industrial coatings. This alignment changed dramatically in the 1980s following the $100 million purchase of Mobil's chemical coatings business in 1984. Among those setting the stage for this acquisition, unprecedented both in size and nature, was Mike Meyers, who reported in June 1984 that "in the last 10 years Valspar's net profits have soared 13-fold, while sales have tripled. However, its formula for prosperity may be about to face a severe test, when Valspar in August is expected to complete the most ambitious acquisition in its history." For Valspar the test was unusually challenging, but not severe.

In effect, the company more than doubled in size through a bargain purchase: 1983 revenues for Valspar were $161 million while revenues for the Mobil division were around $180 million. Valspar's profit margin, at 6 percent, had been leading the industry, while Mobil's coatings margin lagged at just 3 percent. When Wurtele was asked by Meyers why Mobil was willing to sell, he responded that the Mobil division represented "less than half of 1 percent of the total corporation." In other words, Mobil, with such a minute investment, could well afford to let the business go and Valspar, with such an established track record in the industry, could ill afford to pass it by. Virtually overnight, the deal elevated Valspar from the tenth to the fifth largest coatings company in North America. In addition, it gave the manufacturer ready access to potentially high-margin markets, including packaging coatings and industrial metal finishes, which it had previously been unable to capitalize on. By 1986, Valspar had successfully integrated the Mobil operations, thereby proving its adeptness at acquiring even the largest paint and chemical plants and instituting means for improving efficiency and profitability. The buy-low, raise-efficiency strategy remained particularly effective for the company, for the tactic tended to postpone costly new construction and allow for a greater investment in research and development.

To achieve its standing objective of remaining among the top three participants within any of the markets it sought, Valspar prudently divested itself of plants and businesses in the 1980s and early 1990s. Yet, for much the same reason, Valspar acquisitions still continued apace. In 1987 Enterprise Paint Companies, maker of Enterprise Paint and the Federal floor care line, was purchased for $60 million. In July 1989 the McCloskey Corporation, with $42 million in sales, was acquired. The purchase was especially significant for the growth of Valspar's resin business, conducted through its McWhorter Inc. subsidiary. In October 1990 the company acquired certain assets of DeSoto, Inc., which had combined revenues of approximately $45 million. This purchase strengthened the company's market-leading packaging coatings group, and elevated it to a leader in coil and extrusion coatings for the construction industry.

Following the much smaller purchases of container coatings and powder coatings businesses, Valspar acquired Hi-Tek Polymers, Inc., from Rhône Poulenc in May 1991. The Hi-Tek purchase was among the key factors in Valspar's 18 percent increase in packaging coatings sales for 1992. During that year, the company spent a record $19.6 million on such capital improvements as a new resin manufacturing plant, a new consumer coatings research facility, and various capacity enhancements. In addition, nearly $25 million was spent on research and development and quality process training.

In May 1993 the company announced a definitive agreement to acquire Cargill Inc.'s resin products division, which had $190 million in revenues for the year ended May 31, 1992. By contrast, Valspar's resin sales then ranged somewhere between $60 million and $85 million. This deal would have moved Valspar into the number two position in the resin industry, trailing Reichhold Chemicals, but it would not be consummated as an outright acquisition. The Federal Trade Commission investigated the acquisition and concluded that the deal would result in Valspar holding too great a share of the resin market in the Midwest. Rather than abandoning the endeavor, Valspar went ahead with the purchase, a $76 million in cash deal concluded in February 1994, and divided the combined resin operations into two separate companies: McWhorter Technologies, Inc. and Engineered Polymer Solutions, Inc. McWhorter, the larger of the two entities, was then spun off to Valspar shareholders in April 1994. McWhorter began its life as an independent public company with all of the resin assets and plants of Cargill plus three of Valspar's resin plants. What Valspar gained from this complicated deal was new technology for its own coatings business.

KEY ACQUISITIONS OF ROMPALA ERA (1995 TO 2005): COATES, DEXTER, LILLY INDUSTRIES

During 1994 Richard Rompala was brought in as the new president, becoming CEO the following year, and chairman in 1998. The key to hiring Rompala was his experience running global coatings and specialty chemicals businesses at competitor PPG Industries, Inc. Through the mid-1990s, Valspar remained an essentially North American-oriented firm. Only 3 percent of revenues came from overseas. Under Rompala's leadership, the company would dramatically increase this figure to nearly 30 percent by 2004, forming joint ventures in China, Hong Kong, Brazil, South Africa, and Mexico and making a number of acquisitions.

A number of these moves were centered within Valspar's packaging coatings unit. In 1996 and 1997 Valspar completed the first two stages of a four-stage acquisition of the Coates Coatings unit of TOTAL S.A., which included packaging coatings and metal decorating inks operations in the United Kingdom, France, Norway, Germany, Spain, Australia, Hong Kong, and China. The third and fourth stages, completed in 2000 and 2001, included operations in Singapore, Malaysia, Indonesia, and Thailand. During 1998 the company purchased Anzol Pty. Ltd., a maker of packaging and industrial coatings and resins based in Australia. Then in February 1999 Valspar completed its largest acquisition yet, that of the packaging coatings business of Dexter Corporation. The operations acquired from Dexter, which were particularly strong in Europe, had 1998 revenues of $212 million, vaulting Valspar into the number one position worldwide in packaging coatings with a global market share of between 35 and 40 percent. Valspar's consumer unit, meantime, also expanded internationally, through the 1998 acquisition of Plasti-Kote Co., Inc., a maker of consumer aerosol and specialty paint products in the United Kingdom and Scandinavia.

In December 2000 Valspar completed its largest acquisition ever, the purchase of Lilly Industries, Inc. for $1.04 billion, including the assumption of $218 million in debt. Based in Indianapolis, Lilly specialized in wood, metal, and glass coatings for furniture, appliances, building products, and transportation, agricultural, and construction equipment. Lilly's strength in wood and aluminum coatings meshed well with Valspar's focus on steel coatings. Lilly, which reported net sales of $670 million for fiscal 2000, was also attractive to Valspar for its more extensive international business: 27 percent of its sales were international compared to 20 percent for Valspar. Lilly operated 26 manufacturing plants, and these facilities and its sales offices were located in the United States, Canada, Mexico, the United Kingdom, Ireland, Germany, China, Malaysia, Taiwan, Singapore, and Australia. For the deal to pass antitrust muster, Valspar had to divest its mirror coatings business, which was replaced by Lilly's mirror coatings unit. The deal vaulted Valspar from eighth to sixth place among global players in paints and coatings.

In integrating Lilly, Valspar initially aimed at saving $70 million per year through cutbacks. By September 2001 the company had closed seven of its plants, but difficult economic conditions prompted it to go further. That month, Valspar announced plans to shut down seven more plants, reduce production at four others, and cut its global workforce by about 350, or 5 percent. These moves were expected to add as much as $30 million more in annual savings. The company incurred a $39.3 million restructuring charge, which coupled with the weak economy, increasing raw material prices, and higher debt servicing costs translated into net income for fiscal 2001 of $51.5 million, down from the previous year's $86.5 million. This marked the end of 26 consecutive years of earnings growth.

Valspar rebounded in 2002 with revenues surpassing the $2 billion mark for the first time and profits jumping to $120.1 million, despite continued softness in the U.S. industrial economy. Over the next few years, rising raw material costs, stemming primarily from steadily increasing oil prices, were one of the company's main challenges, and the firm responded with aggressive cost-containment efforts. Acquisition opportunities were less plentiful during this period, so additional growth was secured organically. For example, Valspar began developing exclusive lines of brand-name paint for home improvement retailer Lowe's Companies, Inc., including the American Tradition and Signature Colors brands. Overseas, Valspar was particularly targeting China for growth, and with that country's furniture manufacturing sector exploding with growth, Valspar moved quickly to secure a strong position in China's furniture coatings market. In the meantime, there were two smaller acquisitions completed in 2004: De Beer Lakfabrieken B.V., a maker of automotive refinish coatings based in the Netherlands, and certain assets of the forest products business of Associated Chemists, Inc., including a facility manufacturing wood coatings in Orangeburg, South Carolina.

In February 2005 the Rompala era ended at Valspar, with the CEO having grown sales from $795 million to $2.44 billion. Sales outside the United States had increased exponentially, hitting $705.3 million by 2004. Taking on the unenviable task of succeeding Rompala was William L. Mansfield, who had led Valspar's packaging coatings business for many years before being named chief operating officer in April 2004. Rompala stayed on as board chairman until August 2005, when he retired and was replaced by Thomas McBurney, serving as nonexecutive chairman.

The new CEO picked up where his predecessor had left off, completing his first acquisition in June 2005. Valspar acquired Samuel Cabot Incorporated, a maker of premium quality exterior and interior stains and finishes. Family owned since 1877, Cabot was based in Newburyport, Massachusetts, and recorded 2004 sales of approximately $58 million. Continuing to be squeezed by high raw material costs, Valspar in August 2005 announced a major restructuring whereby seven plants were to be closed as the first step in a plan to reduce the firm's worldwide manufacturing capacity by 10 percent. Another challenge for the new leader was to decide what to do with Valspar's packaging business. Valspar was the world leader in rigid packaging, particularly coatings for the inside and outside of tin and aluminum cans, but this sector of the market was in stagnation, even decline, as manufacturers were increasingly switching to flexible packaging, for instance, selling chili in boxes rather than cans. Given the company's absence from the flexible-packaging coatings market, some analysts suggested that Valspar needed to enter that sector either from scratch or via acquisition. Nevertheless, given the firm's remarkable track record for growth and solid profitability, Valspar seemed likely to successfully negotiate these challenges. It remained a perennially exciting company in a longstanding and often overlooked industry.

                                            Jay P. Pederson

                                Updated, David E. Salamie

PRINCIPAL SUBSIDIARIES

Engineered Polymer Solutions, Inc.; Plasti-Kote Co., Inc.; Valspar Coatings Finance Corporation; Valspar Finance Corporation; Valspar Inc. (Canada); Valspar Refinish, Inc.; Valspar Sourcing, Inc.; The Valspar Corporation Limitada (Brazil); Samuel Cabot Incorporated; The Valspar (Australia) Corporation Pty Limited; The Valspar (Nantes) Corporation, S.A.S. (France); The Valspar (France) Corporation, S.A.S.; Valspar Industries GmbH (Germany); The Valspar (Germany) GmbH; The Valspar (H.K.) Corporation Limited (Hong Kong); Valspar Mexicana, S.A. de C.V. (Mexico); Valspar Rock Co., Ltd. (Japan); The Valspar (Singapore) Corporation Pte Ltd; The Valspar (South Africa) Corporation (Pty) Ltd.; The Valspar (UK) Corporation, Limited; The Valspar (Vernicolor) Corporation AG (Switzerland); The Valspar (Malaysia) Corporation Sdn Bhd; Dongguan Lilly Paint Industries Limited (China); Lilly Industries (Shanghai) Limited (China).

PRINCIPAL COMPETITORS

Akzo Nobel N.V.; The Sherwin-Williams Company; Imperial Chemical Industries PLC; PPG Industries, Inc.; BASF AG.

FURTHER READING

Autry, Ret, "Valspar," Fortune, July 16, 1990, p. 75.

Black, Sam, "Valspar Expands in Southeast Asia," Minneapolis/St. Paul Business Journal, August 30, 2002.

, "Valspar's New CEO Follows a Tough Act," Minneapolis/St. Paul Business Journal, January 21, 2005.

Byrne, Harlan S., "Valspar Corp.: A Paint Maker Makes Headway Against Rising Material Prices," Barron's, May 8, 1989, pp. 57-58.

Cahill, William, "Fresh Coat: Industrial Business Is New Focus for Valspar," Barron's, August 4, 1986, pp. 39-40.

Carlson, Scott, "Smart Acquisitions Brush Up Valspar," Pioneer Press and Dispatch, July 17, 1989.

Chang, Joseph, "Valspar Corp. to Acquire Lilly Industries in $975M Deal," Chemical Market Reporter, July 3, 2000, pp. 1, 16.

Cottrill, Ken, "Strategies for World Domination," Journal of Business Strategy, May/June 1998, pp. 36-40.

Fattah, Hassan, "Valspar Paints a Brighter Picture," Chemical Week, February 12, 1997, p. 36.

Feyder, Susan, "Valspar Earnings Paint Pretty Picture," Minneapolis Star Tribune, February 19, 1990, pp. 1D, 6D.

Kiesche, Elizabeth S., "Valspar Settles with FTC over Cargill Resins Acquisition," Chemical Week, November 3, 1993, p. 9.

Meyers, Mike, "Valspar Announces Plan to Buy Cargill Division," Minneapolis Star Tribune, May 21, 1993, p. 3D.

, "Valspar Formula Facing Its Biggest Test," Minneapolis Star and Tribune, June 18, 1984, pp. 1M, 4M.

, "Valspar Plans to Buy Global Packaging Coatings Maker," Minneapolis Star Tribune, August 26, 1998, p. 1D.

160 Years of Valspar History: 18061966, Minneapolis: The Valspar Corporation, 1966.

Peterson, Susan E., "Valspar Will Acquire Lilly Industries," Minneapolis Star Tribune, June 27, 2000, p. 1D.

Plishner, Emily S., "Valspar Plan Calls for Going Global," Chemical Week, April 15, 1992, p. 21.

Scheraga, Dan, "Sovereign to Buy Valspar's Flexible Packaging Coatings," Chemical Market Reporter, April 5, 1999, p. 31.

Tevlin, Jon, "Valspar Seeks Keys to Competence," Minneapolis Star Tribune, June 7, 1998, p. 1D.

"Valspar Acquiring Total's Coates Unit," Chemical Marketing Reporter, March 4, 1996, p. 9.

"The Valspar Corporation," Wall Street Transcript, November 2002.

"Valspar in Massive Restructuring," Chemical Market Reporter, August 22-September 4, 2005, p. 4.

"Valspar Winds Up Last Steps to Consolidate Operations," Corporate Report Minnesota, April 1973, p. 11.

Walden, Gene, "Valspar Corp.," The 100 Best Stocks to Own in America, 2nd ed., Chicago: Dearborn Financial Publishing, 1991.

Warren, Susan, "Valspar Agrees to Buy Lilly Industries, a Rival Paint Maker, for $762 Million," Wall Street Journal, June 26, 2000, p. A42.

Weinberg, Neil, "Compound Growth," Forbes, January 2, 1995, p. 135.

Weintraub, Adam, "Valspar Buys into Global Markets," Minneapolis/St. Paul CityBusiness, July 5, 1999.

Westervelt, Robert, "Valspar Nabs Dexter's Packaging Coatings," Chemical Week, August 26, 1998, p. 16.

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The Valspar Corporation

The Valspar Corporation

1101 Third Street South
Minneapolis, Minnesota 55415
U.S.A.
Telephone: (612) 332-7371
Fax: (612) 375-7723
Web site: http://www.valspar.com

Public Company
Incorporated:
1832 as Valentine and Company
Employees: 3,800
Sales: $1.16 billion (1998)
Stock Exchanges: New York
Ticker Symbol: VAL
NAIC: 325510 Paint and Coating Manufacturing; 325211 Plastics Material and Resin Manufacturing

The Valspar Corporation is the fifth largest North American manufacturer of paints and coatings, a business it has engaged in for nearly two centuries. Its sterling reputation was built on the Valspar varnish, which was unveiled in 1906 as the first coating for wood that retained its clear finish when exposed to water. Nonetheless, until formative mergers with Rockcote Paint Company in 1960 and Minnesota Paints, Inc. in 1970, Valspar was a relatively small manufacturer with limited possibilities for growth. During the last three decades of the 20th century, however, it rose to Fortune 500 status and Wall Street favor through an aggressive acquisition campaign in which dozens of smaller paint and coatings companies entered the Valspar fold.

The company is divided into four large business segmentsConsumer Paints, with 34 percent of sales; Packaging Coatings, 28 percent; Industrial Coatings, 24 percent; and Special Products, 14 percentwhich provide balance and diversity to counteract the business cycle. Perhaps its greatest potential lies in packaging coatings for the food and beverage industry, a business it dramatically embraced in 1984 with the $100 million purchase of Mobil Corporations coatings division and then expanded still further in 1998 with the acquisition of Dexter Corporation; Valspar currently ranks number one in this industry worldwide, with a market share of between 35 and 40 percent. The company operates 32 manufacturing plants in the United States, Canada, Mexico, France, Norway, the United Kingdom, Australia, China, and Singapore; has licensing arrangements throughout the world; and markets such consumer brands as Colony, Enterprise, Laura Ashley, Magicolor, Plasti-Kote, and Valspar. In the mid-1990s Valspar began an aggressive international expansion, which quickly increased its overseas sales from three percent to nearly 20 percent of overall sales.

19th-century Origins

In 1820 two businessmen in Cambridge, Massachusetts, began the first commercial production of varnishes in the United States, a business that was to become Valspars forte for more than a century. Fourteen years earlier, on Bostons Broad Street, Samuel Tuck opened a paint dealership that led directly to the formation of Valspar. Tucks business, Paint and Color, changed names and hands several times during the next 50 years. With Augustine Stimsons assumption of the Broad Street business and Lawson Valentines incorporation of Boston varnish manufacturer Valentine and Company in 1832, the formation of Valspar was made possible. These two businesses soon merged to become Stimson & Valentine. In 1855 Otis Merriam joined Stimson & Valentine as the other principal owner; Merriam, interestingly, had for the previous six years been associated with the original varnish plant in Cambridge. Although popularly known as varnish manufacturers, these men also conducted an import and retail trade in paints, oils, glass, and beeswax. Around 1860 Valentines brother, Henry, joined the firm. By 1866, both Stimson and Merriam had retired and left the Valentine brothers the sole partners in the business, which was then renamed Valentine & Company.

Shortly thereafter, Lawson Valentine made a singularly important decision: he hired a chemist at a time when there were fewer than 100 such specialists in the country; this was a first for the American varnish industry. More important than the creation of the position, however, was the candidate selected for the job. That person was Charles Homer, brother of famed New England artist Winslow Homer and an expert craftsman in the mixing of varnishes. According to the Valspar History, he made varnishes so perfect they could be poured from the can to the back or side of a carriage. Varnishes that flow out smoothly and evenly, dry perfectly. Following Lawsons relocation of the business to New York City in 1870, the same year in which the firm acquired Minnesota Linseed Oil Paint Company, Valentine & Company began to specialize in vehicle finishing varnishes that were competitive with widely prized English varnishes. At the time, the company operated a West Coast office with Whittier, Fuller & Company (later renamed W.P. Fuller & Company) as its representative. In 1878 Valentine & Company entered the Midwest market via a Chicago branch office. Four years later Henry Valentine succeeded his brother as president and the company renewed its Boston ties by reopening a plant there. By the turn of the century, Valentine & Company had established additional operations in Pennsylvania as well as Paris, and had won dozens of international medals for its high-quality varnishes.

Early 20th Century: Valspar Varnish

Lawson Valentines grandson, L. Valentine Pulsifer, joined the company in 1903 after receiving his degree in chemistry from Harvard University. Working under Homer, Pulsifer was allowed to conduct experiments to discover why varnishes always turned white when exposed to water. From Homers standpoint, the experiments would be edifying, though not otherwise profitable; Pulsifer believed, however, that the formula for a clear varnish existedit simply had yet to be discovered. Three years later Pulsifer produced Valspar, the first clear varnish ever; factory production began within two years, accompanied by promotional stunts designed to highlight the products unique features. The first such exhibition involved a boiling water test at the Grand Rapids Furniture Show in 1908. The following year, at the New York Motor Boat Show, Valspar and eight of the best competing brands were applied to a submarine in alternating stripes; the vessel was then submerged and gradually took on the appearance of a sea-going zebra, as the other varnishes whitened and Valspar remained clear.

For the next few decades the company rode on the coattails of Valspar, supported by a strong national advertising campaign during the 1920s that made the product a household word with the tagline the varnish that wont turn white. Pulsifers invention, by virtue of its unparalleled appearance, durability, and ease of application, became a willing participant in a number of historic events. These included Admiral Robert Pearys expedition to the North Pole in 1909, U.S. involvement in World War I, and Charles Lindberghs nonstop solo flight from New York to Paris in 1927; in each of these cases, Valspar finishes were employed as a protective coating on exposed wood surfaces. The varnishing of airplanes, in particular, became synonymous with Valspar during this period. The unveiling of new products and the acquisition of other paint and varnish manufacturers helped Valentine & Company to successfully weather the Great Depression. Among the new products were Super Valspar, Four-Hour Valspar, Val-Oil Clear, Valenite Clear, Valenite Enamels, Three V Floor Varnish, and French Formula Enamel; and among the acquired paint and varnish manufacturers were Con-Ferro Paint and Varnish Company and Detroit-Graphite Company (both acquired in 1930) and Edward Smith & Company (acquired in 1938).

Formative Mergers: Rockcote (1960), Minnesota Paints (1970)

Prior to the stock market crash, in 1927 the seed for another important predecessor to the Valspar Corporation was planted. It was in this year that Ralph J. Baudhuin entered the paint business as a salesman. Within a short time, he helped found the Baudhuin-Anderson Company in Rockford, Illinois. In 1932, the same year that Valentine & Company began to operate as a subsidiary of the newly formed Valspar Corporation, Baudhuin-Anderson became Rockford Paint Manufacturing Company. Four years later, after Ralph Baudhuin had gained sole ownership of the Illinois firm, Rockford Paint was renamed Rockcote Paint Company. During the 1950s Rockcote formed two important subsidiaries. The first, Color Corporation of America, was created to license and sell color systems and related equipment to paint manufacturers; the second, Midwest Synthetics, was formed to develop synthetic resins and resin-based varnishes. Like Valspar, Rockcote also grew by steady acquisitions during this period. By 1958, Baudhuin had taken special notice of Valspar; two years later, he succeeded in merging Rockcote with the old-line firm, then headquartered in Ardmore, Pennsylvania, and consolidated headquarters in Rockford.

Under the direction of the Baudhuin brothers, Ralph and F.J., the 1960s represented a heavy period of growth for Valspar. From the time of the merger until the end of the decade, the company averaged almost two acquisitions per year. Among the businesses purchased were Norco Plastics of Milwaukee, McMurtry Manufacturing of Denver, Keystone Paint and Varnish of Brooklyn, and the Trade Sales Division of Mobil Corporation. Fittingly, the company inaugurated the 1970s with even more phenomenal growth, this time through a historic merger. In June 1970, privately held Minnesota Paints, Inc. of Minneapolis, with annual sales of $24 million, merged with Valspar, with annual sales of $27 million; once again, Valspars headquarters changed, this time to Minneapolis. The deal came at a propitious time, for the old Valspar had suffered a loss of $148,500 while Minnesota Paints had posted a gain of $200,000. Furthermore, Minnesota Paints boasted a strong, cash-heavy financial position to support further acquisitions. In the first fiscal year following the merger, earnings were $226,000 on revenues of $47.6 million. Within two years, Valspars earnings had grown to $1.53 million and it was again ready to expand. The consecutive acquisitions of Phelan Faust Paint, Speed-O-Lac Chemical, Conchemcos Detroit Chemical Coatings, Elliott Paint and Varnish, and Conchemcos Coatings Division increased initial annual revenues by another $74 million during the decade.

Company Perspectives:

Valspars mission is to be the recognized leader in the coatings industry. This leadership will be achieved through the commitment of all employees to Valspars three Principles of Total Quality: meeting customer requirements; continuous improvement; total employee involvement.

1980s and Early 1990s: Acquisitions Continue

Overseeing much of this expansion was C. Angus Wurtele, former president of Minnesota Paints and chairman of Valspar starting in 1973. At the time of Wurteles succession approximately 60 percent of Valspars sales came from its consumer business; the remainder came from industrial coatings. This alignment changed dramatically in the 1980s following the $100 million purchase of Mobils chemical coatings business in 1984. Among those setting the stage for this acquisition, unprecedented both in size and nature, was Mike Meyers, who reported in June 1984 that in the last 10 years Valspars net profits have soared 13-fold, while sales have tripled. However, its formula for prosperity may be about to face a severe test, when Valspar in August is expected to complete the most ambitious acquisition in its history. For Valspar the test was unusually challenging, but not severe.

In effect, the company more than doubled in size through a bargain purchase: 1983 revenues for Valspar were $161 million while revenues for the Mobil division were around $180 million. Valspars profit margin, at six percent, had been leading the industry, while Mobils coatings margin lagged at just three percent. When Wurtele was asked by Meyers why Mobil was willing to sell, he responded that the Mobil division represented less than half of 1 percent of the total corporation. In others words, Mobil, with such a minute investment, could well afford to let the business go and Valspar, with such an established track record in the industry, could ill afford to pass it by. Virtually overnight, the deal elevated Valspar from the tenth to the fifth largest coatings company in North America. In addition, it gave the manufacturer ready access to potentially high-margin markets, including packaging coatings and industrial metal finishes, which it had previously been unable to capitalize on. By 1986, Valspar had successfully integrated the Mobil operations, thereby proving its adeptness at acquiring even the largest paint and chemical plants and instituting means for improving efficiency and profitability. The buy-low, raise-efficiency strategy remained particularly effective for the company, for the tactic tended to postpone costly new construction and allow for a greater investment in research and development.

To achieve its standing objective of remaining among the top three participants within any of the markets it sought, Valspar prudently divested itself of plants and businesses in the 1980s and early 1990s. Yet, for much the same reason, Valspar acquisitions still continued apace. In 1987 Enterprise Paint Companies, maker of Enterprise Paint and the Federal floor care line, was purchased for $60 million. In July 1989 the McCloskey Corporation, with $42 million in sales, was acquired. The purchase was especially significant for the growth of Valspars resin business, conducted through its McWhorter Inc. subsidiary. In October 1990 the company acquired certain assets of DeSoto, Inc., which had combined revenues of approximately $45 million. This purchase strengthened the companys market-leading packaging coatings group, and elevated it to a leader in coil and extrusion coatings for the construction industry.

Following the much smaller purchases of container coatings and powder coatings businesses, Valspar acquired Hi-Tek Polymers, Inc., from Rhone Poulenc in May 1991. The Hi-Tek purchase was among the key factors in Valspars 18 percent increase in packaging coatings sales for 1992. During that year, the company spent a record $19.6 million on such capital improvements as a new resin manufacturing plant, a new consumer coatings research facility, and various capacity enhancements. In addition, nearly $25 million was spent on research and development and quality process training.

Key Dates:

1806:
Samuel Tuck opens a Boston paint dealership called Paint and Color, which is later acquired by Augustine Stimson.
1820:
First commercial production of varnishes in the United States begins in Cambridge, Massachusetts.
1832:
Valentine and Company, a varnish manufacturer, is incorporated in Boston by Lawson Valentine, and soon merges with Paint and Color to become Stimson & Valentine.
1866:
Valentine and his brother, Henry, become sole partners in the business, renaming it Valentine & Company.
1870:
Company relocates to New York City and acquires Minnesota Linseed Oil Paint Company.
1882:
Henry Valentine succeeds his brother as president.
1903:
Chemist L. Valentine Pulsifer, grandson of Lawson Valentine, joins company.
1906:
Pulsifer develops Valspar, the first clear varnish.
1932:
Valentine & Company begins operating as a subsidiary of newly formed Valspar Corporation.
1960:
Valspar merges with Rockcote Paint Company, with new headquarters in Rockford, Illinois.
1970:
Valspar merges with Minnesota Paints, Inc., with new headquarters in Minneapolis.
1973:
C. Angus Wurtele becomes company chairman.
1984:
Mobil Corporations chemical coatings business is acquired for $100 million.
1990:
Sales approach $650 million.
1994:
Company acquires Cargill Inc.s resin products division, combines it with part of existing resin business, and spins it off to shareholders as McWhorter Technologies, Inc.
1995:
Richard Rómpala becomes CEO, then chairman in 1998.
1996:
Two-stage acquisition of the Coates Coatings unit of TOTAL S.A. is begun and is completed in 1997.
1997:
Sales reach $1 billion.
1999:
Purchase of the packaging coatings business of Dexter Corporation vaults Valspar into the number one position worldwide in packaging coatings.

In May 1993 the company announced a definitive agreement to acquire Cargill Inc.s resin products division, which had $190 million in revenues for the year ended May 31, 1992. By contrast, Valspars resin sales then ranged somewhere between $60 million and $85 million. This deal would have moved Valspar into the number two position in the resin industry, trailing Reichhold Chemicals, but it would not be consummated as an outright acquisition. The Federal Trade Commission investigated the acquisition and concluded that the deal would result in Valspar holding too great a share of the resin market in the Midwest. Rather than abandoning the endeavor, Valspar went ahead with the purchase, a $76 million in cash deal concluded in February 1994, and divided the combined resin operations into two separate companies: McWhorter Technologies, Inc. and Engineered Polymer Solutions, Inc. McWhorter, the larger of the two entities, was then spun off to Valspar shareholders in April 1994. McWhorter began its life as an independent public company with all of the resin assets and plants of Cargill plus three of Valspars resin plants. What Valspar gained from this complicated deal was new technology for its own coatings business.

Mid-to-Late 1990s and Beyond

During 1994 Richard Rómpala was brought in as the new president, becoming CEO the following year, and chairman in 1998. The key to hiring Rómpala was his experience running global coatings and specialty chemicals businesses at competitor PPG Industries, Inc. Through the mid-1990s, Valspar remained an essentially North American-oriented firm. Only three percent of revenues came from overseas. Under Rómpalas leadership, the company would dramatically increase this figure to nearly 20 percent by decades end, forming joint ventures in China, Hong Kong, Brazil, South Africa, and Mexico and making a number of acquisitions.

A number of these moves were centered within Valspars packaging coatings unit. In 1996 and 1997 Valspar completed a two-stage acquisition of the Coates Coatings unit of TOTAL S.A., which included packaging coatings and metal decorating inks operations in the United Kingdom, France, Norway, Germany, Spain, Australia, Hong Kong, and China. During 1998 the company purchased Anzol Pty. Ltd., a maker of packaging and industrial coatings and resins based in Australia, and made what was likely its largest acquisition to date, that of the packaging coatings business of Dexter Corporation. The operations acquired from Dexterwhich were particularly strong in Europehad 1997 revenues of $208 million, vaulting Valspar into the number one position worldwide in packaging coatings with a global market share of between 35 and 40 percent. Valspars consumer unit, meantime, also expanded internationally, through the 1998 acquisition of Plasti-Kote Co., Inc., a maker of consumer aerosol and specialty paint products in the United Kingdom and Scandinavia.

If track records mean anything, Valspar would continue to outperform most of its competitors well into the 21st century, despite rising materials costs and other potential setbacks. With revenues increasing by double-digit percentages in 1997 and 1998, the company was well on its way toward reaching its goal of $2 billion in revenues by 2001. Recurrent market share gains, 24 consecutive years of earnings growth, steady return on equity of more than 20 percent, and 21 consecutive years of dividend increases all pointed to Valspars preeminence as a perennially exciting company in a longstanding and often overlooked industry.

Principal Subsidiaries

Engineered Polymer Solutions, Inc.; Plasti-Kote Co., Inc.; Valspar Coatings Finance Corporation; Valspar Finance Corporation; Valspar Inc. (Canada); Valspar Refinish, Inc.; The Valspar (Australia) Corporation Pty Limited; The Valspar (H.K.) Corporation Limited (Hong Kong); The Valspar (Singapore) Corporation Pte Ltd; The Valspar (UK) Holding Corporation, Limited.

Principal Operating Units

Consumer Group; Packaging Group; Industrial Group; Special Products.

Principal Competitors

Akzo Nobel N.V.; BASF AG; Benjamin Moore & Co.; E.I. du Pont de Nemours and Company; Ferro Corporation; H.B. Fuller Company; Imperial Chemical Industries PLC; Kelly-Moore Paint Company, Inc.; McWhorter Technologies, Inc.; NL Industries, Inc.; PPG Industries, Inc.; RPM, Inc.; Sherwin-Williams Company.

Further Reading

Autry, Ret, Valspar, Fortune, July 16, 1990, p. 75.

Byrne, Harlan S., Valspar Corp.: A Paint Maker Makes Headway Against Rising Material Prices, Barrons, May 8, 1989, pp. 5758.

Cahill, William, Fresh Coat: Industrial Business Is New Focus for Valspar, Barrens, August 4, 1986, pp. 3940.

Carlson, Scott, Smart Acquisitions Brush Up Valspar, Pioneer Press and Dispatch, July 17, 1989.

Cottrill, Ken, Strategies for World Domination, Journal of Business Strategy, May/June 1998, pp. 3640.

Fattah, Hassan, Valspar Paints a Brighter Picture, Chemical Week, February 12, 1997, p. 36.

Feyder, Susan, Valspar Earnings Paint Pretty Picture, Minneapolis Star Tribune, February 19, 1990, pp. ID, 6D.

Kiesche, Elizabeth S., Valspar Settles with FTC over Cargill Resins Acquisition, Chemical Week, November 3, 1993, p. 9.

Meyers, Mike, Valspar Formula Facing Its Biggest Test, Minneapolis Star and Tribune, June 18, 1984, pp. 1M, 4M.

160 Years of Valspar History: 18061966, Minneapolis: Valspar Corporation, 1966.

, Valspar Announces Plan to Buy Cargill Division, Minneapolis Star Tribune, May 21, 1993, p. 3D.

, Valspar Plans to Buy Global Packaging Coatings Maker, Minneapolis Star Tribune, August 26, 1998, p. 1D.

Plishner, Emily S., Valspar Plan Calls for Going Global, Chemical Week, April 15, 1992, p. 21.

Scheraga, Dan, Sovereign to Buy Valspars Flexible Packaging Coatings, Chemical Market Reporter, April 5, 1999, p. 31.

Tevlin, Jon, Valspar Seeks Keys to Competence, Minneapolis Star Tribune, June 7, 1998, p. 1D.

Valspar Acquiring Totals Coates Unit, Chemical Marketing Reporter, March 4, 1996, p. 9.

Valspar Winds Up Last Steps to Consolidate Operations, Corporate Repon Minnesota, April 1973, p. 11.

Walden, Gene, Valspar Corp., The 100 Best Stocks to Own in America, 2nd ed., Chicago: Dearborn Financial Publishing, 1991.

Weinberg, Neil, Compound Growth, Forbes, January 2, 1995, p. 135.

Weintraub, Adam, Valspar Buys into Global Markets, Minneapolis/St. Paul CityBusiness, July 5, 1999.

Westervelt, Robert, Valspar Nabs Dexters Packaging Coatings, Chemical Week, August 26, 1998, p. 16.

Jay P. Pederson

updated by David E. Salamie

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The Valspar Corporation

The Valspar Corporation

1101 Third Street South
Minneapolis, Minnesota 55415
U.S.A.
(612) 332-7371
Fax: (612) 375-7723

Public Company
Incorporated: 1832 as Valentine and Company
Employees: 2,482
Sales: $683.48 million
Stock Exchanges: AMEX
SICs: 2821 Plastics Materials and Resins; 2851 Paints and Allied Products

The Valspar Corporation is the fifth-largest North American manufacturer of paints and coatings, a business it has engaged in for more than 185 years. Its sterling reputation was built on the Valspar varnish, which was unveiled in 1906 as the first coating for wood that retained its clear finish when exposed to water. Nonetheless, until formative mergers with Rockcote Paint Company in 1960 and Minnesota Paints in 1970, Valspar was a relatively small manufacturer with limited possibilities for growth. During the past three decades, however, it has risen to Fortune 500 status and Wall Street favor through an aggressive acquisition campaign in which dozens of smaller paint companies have entered the Valspar fold.

The company is divided into four large business segmentsConsumer, Packaging Coatings, Industrial Coatings, and Special Productsthat are roughly equal in size. Perhaps its greatest potential lies in packaging coatings for the food and beverage industry, a business it dramatically embraced in 1984 with the $100-million purchase of Mobil Corporations coatings division; Valspar currently ranks as a leader in this industry, for more than half of all beverage and food containers in the United States feature inner coatings made by Valspar. The company operates 21 manufacturing plants in the United States and Canada, has licensing arrangements throughout the world, and markets such consumer brands as Colony, Magicolor, Valspar, and Enterprise as well as private-label products for Target, Our Own Hardware, and Coast-to-Coast stores.

In 1820 two businessmen in Cambridge, Massachusetts, began the first commercial production of varnishes in the United States, a business that was to become Valspars forte for more than a century. Fourteen years earlier, on Bostons Broad Street, Samuel Tuck opened a paint dealership that led directly to the formation of Valspar. Tucks business, Paint and Color, changed names and hands several times during the next 50 years. With Augustine Stimsons assumption of the Broad Street business and Lawson Valentines incorporation of Boston varnish manufacturer Valentine and Company in 1832, the formation of Valspar was made possible. These two businesses soon merged to become Stimson & Valentine. In 1855 Otis Merriam joined Stimson & Valentine as the other principal owner; Merriam, interestingly, had for the previous six years been associated with the original varnish plant in Cambridge. Although popularly known as Varnish Manufacturers, these men also conducted an import and retail trade in paints, oils, glass, and beeswax. Around 1860 Valentines brother, Henry, joined the firm. By 1866, both Stimson and Merriam had retired and left the Valentine brothers the sole partners in the business, which was then renamed Valentine & Company.

Shortly thereafter, Lawson Valentine made a singularly important decision: he hired a chemist at a time when there were fewer than 100 such specialists in the country; this was a first for the American varnish industry. More important than the creation of the position, however, was the candidate selected for the job. That person was Charles Homer, brother of famed New England artist Winslow Homer and an expert craftsman in the mixing of varnishes. According to the Valspar History, he made varnishes so perfect they could be poured from the can to the back or side of a carriage Varnishes that flow out smoothly and evenly, dry perfectly. Following Lawsons relocation of the business to New York City in 1870, the same year in which the firm acquired Minnesota Linseed Oil Co., Valentine & Company began to specialize in vehicle finishing varnishes that were competitive with widely prized English varnishes. At the time, the company operated a West Coast office with Whittier, Fuller & Company (later renamed W. P. Fuller & Company) as its representative. In 1878 Valentine & Company entered the Midwest market via a Chicago branch office. Four years later Henry Valentine succeeded his brother as president and the company renewed its Boston ties by reopening a plant there. By the turn of the century, Valentine & Company had established additional operations in Pennsylvania as well as Paris, and had won dozens of international medals for its high-quality varnishes.

Lawson Valentines grandson, L. Valentine Pulsifer, joined the company in 1903 after receiving his degree in chemistry from Harvard University. Working under Homer, Pulsifer was allowed to conduct experiments to discover why varnishes always turned white when exposed to water. From Homers standpoint, the experiments would be edifying, though not otherwise profitable; however, Pulsifer believed that the formula for a clear varnish existedit simply had yet to be discovered. Three years later Pulsifer produced Valspar, the first clear varnish ever; factory production began within two years, accompanied by promotional stunts designed to highlight the products unique features. The first such exhibition involved a boiling water test at the Grand Rapids Furniture Show in 1908. The following year, at the New York Motor Boat Show, Valspar and eight of the best competing brands were applied to a submarine in alternating stripes; the vessel was then submerged and gradually took on the appearance of a sea-going zebra, as the other varnishes whitened and Valspar remained clear.

For the next few decades the company rode on the coattails of Valspar, supported by a strong national advertising campaign during the 1920s that made the product a household word with the tagline the varnish that wont turn white. Pulsifers invention, by virtue of its unparalleled appearance, durability, and ease of application, became a willing participant in a number of historic events. These included Admiral Robert Pearys expedition to the North Pole in 1909, U.S. involvement in World War I, and Charles Lindberghs nonstop solo flight from New York to Paris in 1927; in each of these cases, Valspar finishes were employed as a protective coating on exposed wood surfaces. The varnishing of airplanes, in particular, became synonymous with Valspar during this period. The unveiling of new products and the acquisition of other paint and varnish manufacturers helped Valentine & Company successfully weather the Great Depression. Among the new products were Super Valspar, Four-Hour Valspar, Val-Oil Clear, Valenite Clear, Valenite Enamels, Three V Floor Varnish, and French Formula Enamel; and among the acquired paint and varnish manufacturers were Con-Ferro Paint and Varnish Company and Detroit-Graphite Company (both acquired in 1930) and Edward Smith & Company (acquired in 1938).

Prior to the stock market crash, in 1927 the seed for another important predecessor to the Valspar Corporation was planted. It was in this year that Ralph J. Baudhuin entered the paint business as a salesman. Within a short time, he helped found the Baudhuin-Anderson Company in Rockford, Illinois. In 1932, the same year that Valentine & Company began to operate as a subsidiary of the newly formed Valspar Corporation, Baudhuin-Anderson became Rockford Paint Manufacturing Company. Four years later, after Ralph Baudhuin had gained sole ownership of the Illinois firm, Rockford Paint was renamed Rockcote Paint Company. During the 1950s Rockcote formed two important subsidiaries. The first, Color Corporation of America, was created to license and sell color systems and related equipment to paint manufacturers; the second, Midwest Synthetics, was formed to develop synthetic resins and resin-based varnishes. Like Valspar, Rockcote also grew by steady acquisitions during this period. By 1958, Baudhuin had taken special notice of Valspar; two years later, he succeeded in merging Rockcote with the old-line firm, then headquartered in Ardmore, Pennsylvania, and consolidated headquarters in Rockford.

Under the direction of the Baudhuin brothers, Ralph and F. J., the 1960s represented a heavy period of growth for Valspar. From the time of the merger until the end of the decade, the company averaged almost two acquisitions per year. Among the businesses purchased were Norco Plastics of Milwaukee, McMurtry Manufacturing of Denver, Keystone Paint and Varnish of Brooklyn, and the Trade Sales Division of Mobil Corporation. Fittingly, the company inaugurated the 1970s with even more phenomenal growth, this time through a historic merger. In June of 1970, privately held Minnesota Paints of Minneapolis, with annual sales of $24 million, merged with Valspar, with annual sales of $27 million. The deal came at a propitious time, for the old Valspar had suffered a loss of $148,500 while Minnesota Paints had posted a gain of $200,000. Furthermore, Minnesota Paints boasted a strong, cash-heavy financial position to support further acquisitions. In the first fiscal year following the merger, earnings were $226,000 on revenues of $47.6 million. Within two years, Valspars earnings had grown to $1.53 million and it was again ready to expand. The consecutive acquisitions of Phelan Faust Paint, Speed-O-Lac Chemical, Conchemcos Detroit Chemical Coatings, Elliott Paint and Varnish, and Conchemcos Coatings Division increased initial annual revenues by another $74 million during the decade.

Overseeing much of this expansion was C. Angus Wurtele, former president of Minnesota Paints and chairman of Valspar since 1973. At the time of Wurteles succession approximately 60 percent of Valspars sales came from its consumer business; the remainder came from industrial coatings. This alignment changed dramatically in the 1980s following the purchase of Mobils chemical coatings business. Among those setting the stage for this acquisition, unprecedented both in size and nature, was Mike Meyers, who reported in June of 1984 that in the last 10 years Valspars net profits have soared 13-fold, while sales have tripled. However, its formula for prosperity may be about to face a severe test, when Valspar in August is expected to complete the most ambitious acquisition in its history. For Valspar the test was unusually challenging, but not severe.

In effect, the company more than doubled in size through a bargain purchase: 1983 revenues for Valspar were $161 million while revenues for the Mobil division were around $180 million. Valspars profit margin, at six percent, had been leading the industry, while Mobils coatings margin lagged at just three percent. When Wurtele was asked by Meyers why Mobil was willing to sell, he responded that the Mobil division represented less than half of 1 percent of the total corporation. In others words, Mobil, with such a minute investment, could well afford to let the business go and Valspar, with such an established track record in the industry, could ill afford to pass it by. Virtually overnight, the deal elevated Valspar fro mthe tenth- to the fifth-largest coatings company in North America. In addition, it gave the manufacturer ready access to potentially high-margin markets, including packaging coatings and industrial metal finishes, which it had previously been unable to capitalize on. By 1986, Valspar had successfully integrated the Mobil operations, thereby proving its adeptness at acquiring even the largest paint and chemical plants and instituting means for improving efficiency and profitability. The buy-low, raise-efficiency strategy has remained particularly effective for the company, for the tactic tends to postpone costly new construction and allow for a greater investment in research and development.

To achieve its standing objective of remaining among the top three participants within any of the markets it seeks, Valspar has prudently divested itself of plants and businesses in recent years. Yet, for much the same reason, Valspar acquisitions still continue apace. In July of 1989 The McCloskey Corporation, with $42 million in sales, was acquired. The purchase was especially significant for the growth of Valspars resin business, conducted through its McWhorter Inc. subsidiary. In October of 1990 the company acquired certain assets of DeSoto, Inc., which had combined revenues of approximately $45 million. This purchase strengthened the companys market-leading packaging coatings group, and elevated it to a leader in coil and extrusion coatings for the construction industry.

Following the much smaller purchases of container coatings and powder coatings businesses, Valspar acquired Hi-Tek Polymers, Inc., from Rhone Poulenc in May of 1991. The Hi-Tek purchase was among the key factors in Valspars 18 percent increase in packaging coatings sales for 1992. During that year, the company spent a record $19.6 million on such capital improvements as a new resin manufacturing plant, a new consumer coatings research facility, and various capacity enhancements. In addition, nearly $25 million was spent on research and development and quality process training. In May of 1993 the company announced a definitive agreement to acquire Cargills Resin Products Division, which had $190 million in revenues for the year ended May 31, 1992. By contrast, Valspars resin sales then ranged somewhere between $60 to $85 million. According to Susan E. Peterson in the Star Tribune, this latest deal means that Valspar would move up to a solid No. 2 in the resin industry, behind Reichhold Chemicals, a subsidiary of a Japanese firm. If track records mean anything, Valspar should continue to outperform most of its competitors during the remainder of the decade, despite rising materials costs and other potential setbacks. Recurrent market share gains, steady return on equity of 20 percent, compounded stock appreciation over 10 years of 33 percent, and 15 consecutive years of dividend increases all point to Valspars preeminence as a perennially exciting company in a longstanding and often overlooked industry.

Principal Subsidiaries

Color Corporation of America; Conco Paint Company (50%); Enterprise Companies; McClosky Corporation; McWhorter Inc.; Valspar Inc. (Canada).

Further Reading

Autry, Ret, Valspar, Fortune, July 16, 1990, p. 75.

Byrne, Harlan S., Valspar Corp.: A Paint Maker Makes Headway Against Rising Material Prices, Barrens, May 8, 1989, pp. 5758.

Cahill, William, Fresh Coat: Industrial Business Is New Focus for Valspar, Barrens, August 4, 1986, pp. 3940.

Carlson, Scott, Smart Acquisitions Brush Up Valspar, Pioneer Press and Dispatch, July 17, 1989.

Feyder, Susan, Valspar Earnings Paint Pretty Picture, Star Tribune, February 19, 1990, pp. ID, 6D.

Meyers, Mike, Valspar Formula Facing Its Biggest Test, Minneapolis Star and Tribune, June 18, 1984, pp. 1M, 4M.

160 Years of Valspar History: 1806-1966, Minneapolis: Valspar Corporation, 1966.

Peterson, Susan E., Valspar Announces Plan to Buy Cargill Division, Star Tribune, May 21, 1993, p. 3D.

Valspar Winds Up Last Steps to Consolidate Operations, Corporate Report Minnesota, April 1973, p. 11.

Walden, Gene, Valspar Corp., The 100 Best Stocks to Own in America, second edition, Chicago: Dearborn Financial Publishing, 1991.

Jay P. Pederson

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