Nippon Paint offers US$2.7 bln bid for Australia’s DuluxGroup, target shares soar

Japan’s Nippon Paint to acquire Australia’s DuluxGroup for US$2.7 billion. (Reuters)

SYDNEY: Japan’s Nippon Paint Holdings Co Ltd has proposed buying Australia’s biggest paint maker DuluxGroup Ltd for A$3.8 billion (US$2.7 billion), expanding its global footprint though entering Australia just as a housing boom falters.

The deal – recommended by the Dulux board – is the latest in a slew of Japanese acquisitions in Australia and would catapult Nippon Paint from a bit player to the biggest paint seller in the region as it seeks growth outside its home market.

However, it comes as Australia’s construction sector approaches a precipice as building approvals – a forward indicator of demand for home improvement products – have hit five-year lows.

DuluxGroup stock soared 28% in early trade to the offer price of A$9.80, a record high. The broader market opened flat.

The cash offer includes A$0.15 per share of interim dividend that DuluxGroup intends to pay.

“The price point that they’ve paid is quite incredible,” said portfolio manager Jun Bei Liu at Tribeca Investment Partners, a fund manager which exited DuluxGroup stock ahead of a slowdown in the building materials sector.

“It’s a very good company, great management, it’s just that the outlook isn’t that great,” she said. “Even though paint is pretty defensive, when the volume is falling substantially…it’s looking challenging.”

The deal comes as DuluxGroup’s revenue growth slows and building materials suppliers face a strong headwind as an east-coast homebuilding boom winds down and home valuations drop sharply.

“We have unanimously concluded that the transaction with Nippon is in the best interests of our shareholders,” said Graeme Liebelt, chairman of DuluxGroup, which was spun off from explosives-maker Orica Ltd in 2010.

Nippon Paint Chief Executive Tetsushi Tado said DuluxGroup would be run as a separate division and he expected no changes to its leadership, business portfolio, manufacturing or operations.

“DuluxGroup will still be DuluxGroup,” he said. Shares in Nippon Paint, the fifth-largest paint seller in the world by market capitalisation, opened 3.4% lower in Tokyo.

The proposal will be subject to regulatory scrutiny from foreign investment regulators in both Australia and New Zealand.

Nippon Paint, which currently has no operations in Australia and New Zealand, said it expects to fund the proposed deal via a debt acquisition facility and that the offer is not conditional on Nippon Paint securing funds.