The Japanese company has offered $9.80 Australian dollars ($7.02) per share in cash, which includes 15 Australian cents per share for the interim dividend DuluxGroup intends to pay. The offer represents a 28% premium over DuluxGroup's closing price on Tuesday. Nippon Paint aims to complete the buyout in mid-August.
On the Tokyo Stock Exchange on Wednesday, Nippon Paint shares dropped 4% at one point on news of the buyout. But Atsushi Yoshida, senior analyst at Mizuho Securities, believes the move is a good one. "Dulux operates in areas that Nippon Paint has not entered, thus there won't be any overlap," Yoshida said. "The size of the acquisition will be settled with only [bank] borrowing, and no issues of new stock. It is unlikely that it will cause an equity dilution."
DuluxGroup is the top paint maker in Australia and New Zealand, with revenue totaling $1.3 billion in the year ending September 2018. However, Nippon Paint's offer comes amid slower sales growth as Australia's house-building boom loses momentum.
In a statement, DuluxGroup, Chairman Graeme Liebelt said: "The board has carefully considered the strategic options available to DuluxGroup to maximize value, including continuing to pursue domestic and global growth as a stand-alone company, and we have unanimously concluded that the transaction with Nippon is in the best interests of our shareholders."
Top shareholders in the company include AustalianSuper, which is the country's largest superannuation and pension fund, and Norges Bank Investment Management, the investment arm of the Norwegian central bank.
The acquisition will allow Nippon Paint to expand its global footprint. The company generates 60% of its sales from Asia outside Japan, mainly in China. But housing sales there are cooling off as the government clamps down on real estate investment. This has hurt Nippon Paint's sales in the country. In addition to China and other Asian markets, the purchase of DuluxGroup will help the Japanese company expand its sales channels in Oceania.
Nippon Paint recently named Masaaki Tanaka, who briefly headed Japan's biggest public-private fund last year, as its new executive chairman. Tanaka resigned as president of the Japan Investment Corp. in early December after just three months, following disputes with Japan's Ministry of Economy, Trade and Industry over executive pay and other business decisions at the fund.
Nippon Paint announced Tanaka's appointment, along with other changes in senior management, such as the creation of a CEO post. President Tetsushi Tado will take on the new role while remaining as president. In an effort to attract high-level talent, the company raised its maximum executive pay to 2 billion yen a year.
The Japanese company sought a merger with U.S. coatings maker Axalta Coating Systems in 2017. But talks ended without a deal after Nippon Paint's top shareholder, Singapore-based paint and coating manufacturer Wuthelam Group, opposed it.
Source: Nikki Asian Review