Nippon Paint Bids $2.7 Billion For Australia’s Dulux Group

Dulux Paint
HK Sai Ying Pun Des Voeux Road West Dulux Painting Material Shop (Photo: Wikimedia Commons/Dromafoobeno)

Nippon Paint Holdings Co Ltd, a Japanese firm, proposed to purchase Dulux Group Ltd, the biggest paint maker in Australia, for $2.7 billion as the company expands its global operations through the Australian market amidst the decline of the housing industry.

The proposal was recommended by the board of Dulux. It is the latest purchase of a Japanese company in Australia. It also means that Nippon Paint will move from being a small player into the biggest paint seller in the region as it seeks global recognition and sales.

The purchase is timely, however, to the decline in the construction sector in Australia shown by the five-year low in its building approvals. It indicates the low demand for home improvement products in the country.

Recently, DuluxGroup stock gained a record high as it soared 28 percent in early trade to the offer price of A$9.80. The overall market, however, opened flat.

The proposed deal included A$0.15 per share of interim dividend that DULUXGroup intends to pay. The portfolio manager at Tribeca Investment Partners and the fund manager which exited DuluxGroup stock ahead of a slowdown in the building materials sector, Jun Bei Liu, said that the price point that they've paid is quite incredible.

She added that it's a very good company, great management, it's just that the outlook isn't that great. She also said that even though the paint is pretty defensive, when the volume is falling substantially it's looking challenging.

The proposed deal of the Japanese firm came as Dulux Group's revenue growth slowed and the suppliers of building materials faced uncertainty due to the sharp drop in east-coast homebuilding and home valuations.

Graeme Liebelt, chairman of DuluxGroup, said that they have unanimously concluded that the transaction with Nippon is in the best interests of our shareholders. The chief executive of Nippon Paint, Tetsushi Tado said that DuluxGroup's operations will be separately run by another division and he expected no changes in its leadership, business portfolio, manufacturing or operations. He said that Dulux Group will still be Dulux Group.

Nippon Paint is the fifth-largest paint seller in the world in terms of market capitalization. The company opened 3.4 percent lower in Tokyo. The proposal will pass through regulatory scrutiny from its foreign investment regulators in Australia and New Zealand.

Nippon Paint said that it is expecting to fund the proposed deal through its debt acquisition facility and the offer is not conditional on Nippon Paint securing funds.

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