Nippon Paint to buy Australia’s DuluxGroup for $2.7bn

April, 18, 2019

Largest Japan deal in Australia since $4.9bn takeover of logistics group Toll in 2015

The Financial Times - Nippon Paint has struck a deal to buy Australian paint and coatings maker DuluxGroup for A$3.8bn ($2.7bn) as the Japanese company seeks to reduce its reliance on the volatile Chinese market.

The deal would be Japan’s biggest in Australia since Japan Post Holdings’ disastrous $4.9bn takeover of logistics company Toll in 2015, which forced the Japanese group to make a $3.6bn writedown just two years after the purchase.

The acquisition comes at a time of strong appetite for outbound deals by Japanese companies contending with a shrinking home market and ultra-low interest rates. Last month, Japan’s biggest bank, Mitsubishi UFJ Financial Group, agreed to buy the aviation finance business of Germany’s DZ Bank for $6.3bn.

In a statement, Nippon Paint said it offered A$9.80 a share for the Sydney-listed company, a 27.8 per cent premium to Tuesday’s closing share price. DuluxGroup said its board unanimously backed the deal, which the Japanese paint and coatings maker plans to finance with bank loans.

Shares in DuluxGroup surged 27.6 per cent in Tokyo on Wednesday, while Nippon Paint fell as much as 4 per cent.

At a press conference in Osaka, Tetsushi Tado, Nippon Paint chief executive, said the deal would diversify the company’s China-focused global footprint at a time when growth in China has been threatened by its trade dispute with the US.

If the acquisition goes through, Nippon Paint would generate about 47 per cent of its sales in China and other parts of Asia, compared with 57 per cent now.

But the deal, which gave DuluxGroup an implied enterprise value of $4.2bn, will also increase Nippon Paint’s presence in Australia at a time when a sharp housing downturn threatens to end one of the longest periods of economic growth.

DuluxGroup said the offer would give it “increased opportunity” to pursue its growth ambitions, and that no changes were expected to its leadership or operations. Its shareholders will vote on the deal in July.

Atsushi Yoshida, analyst at Mizuho Securities, said the $2.7bn price tag seemed to overvalue DuluxGroup.

But he added the deal was still attractive considering “the stable growth prospects of the Australia and New Zealand paint market, the 10 per cent-plus profit margins boasted by Dulux and the synergies the company will achieve” in procurement of raw materials and increased sales.

The deal with DuluxGroup came after merger talks between Nippon Paint and US coatings group Axalta collapsed in late December of 2017 shortly after the Japanese company gatecrashed friendly talks between Axalta and Dutch rival Akzo Nobel.