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MEXICO CITY, July 18 (Reuters) - Mexico's competition watchdog said it had denied U.S. paint maker Sherwin Williams Co's $2.34 billion purchase of Mexican paint company Consorcio Comex due to concerns it could create unfair market conditions.
The federal competition commission (Cofeco) said it feared the tie-up would create a company with a large part of the local market for decorative paint, potentially impeding competition.
Sherwin Williams announced the deal in November last year, saying it would help it increase its presence in markets such as Mexico, the U.S. West Coast and Canada, where its store count is low.
Cofeco said its analysis showed the tie-up would create a company with between 48 and 58 percent of the decorative paint market and that would be six to 10 times bigger than its closest competitor.
The companies will be able to appeal the decision with Cofeco.
"We are disappointed by this decision, but remain hopeful that we can adequately address the Commission's objections and proceed with the transaction," said Sherwin Williams Chief Executive Christopher Connor in a statement.
Sherwin Williams, which reported slightly weaker-than-expected second-quarter results earlier on Thursday, said it would discuss the decision in more detail on a call with analysts later in the morning.
Comex is a family-owned company that was founded in the 1950s. It has more than 3,000 outlets in Mexico, compared to Sherwin Williams' 135 stores.
The purchase price for Comex, which generated sales of about $1.4 billion in 2011, includes debt held by the company.