The Valspar Corporation

1820–1998

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 segments--Consumer Paints, with 34 percent of sales; Packaging Coatings, 28 percent; Industrial Coatings, 24 percent; and Special Products, 14 percent--which 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 Corporation's 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 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; 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 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 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

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.

1903–1970

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 ever; 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.'

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 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, 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

1973–1994

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 six percent, had been leading the industry, while Mobil's 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 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.

Mid-to-Late 1990s and Beyond

1994–2001

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 three percent of revenues came from overseas. Under Rompala's leadership, the company would dramatically increase this figure to nearly 20 percent by decade's 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 Valspar's 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 Dexter--which were particularly strong in Europe--had 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. 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.

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 Valspar's preeminence as a perennially exciting company in a longstanding and often overlooked industry.