Late last week the board of DuluxGroup announced that it had unanimously agreed to accept an offer of $4.2 billion from Japan’s Nippon Paint and was urging shareholders to accept the deal.
Nippon has offered to buy the company for a 100 percent cash consideration of $9.80 per share which represents a substantial 27.8 per cent premium to Dulux’s closing price prior to the offer. The offer values Dulux equity at $3.8 billion and an implied enterprise value of $4.2 billion including the company’s net debt of $340.5 million and an interim dividend of 15 cents-per-share to be paid by Dulux. Whilst Dulux’s share price rose significantly, interestingly, Nippon’s share price fell by 3.6 percent on the news.
DuluxGroup Chairman, Mr. Graeme Liebelt said: “The Board has carefully considered the strategic options available to DuluxGroup to maximise value, including continuing to pursue domestic and global growth as a standalone company, and we have unanimously concluded that the transaction with Nippon is in the best interests of our shareholders. It provides an opportunity for shareholders to realise a significant premium to market value for their shares and is on terms that reflect the strategic value of DuluxGroup to Nippon. Nippon has been extremely complimentary of DuluxGroup’s team, capability, high quality businesses and track record of performance, all of which they want to maintain. I have confidence that this new partnership will provide strong benefits for both companies.”
Dulux believes the acquisition will join “two world class companies” with market exposures that complement each other. Managing director and CEO Patrick Houlihan said that there are no expected changes to Dulux’s leadership, business portfolio, manufacturing or operations if the buyout is to go ahead. “We are proud of the successes we have achieved as an independent company since listing on the Australian Securities Exchange in 2010 following our demerger from Orica Limited,” said Houlihan. “Nippon is a global leader in the paints and coatings sector and we are confident that Nippon will continue to support the ongoing success of DuluxGroup’s businesses and brands, and that this will create significant opportunities for our staff, customers and strategic partners.”
In the previous financial year, Nippon generated around $7.8 billion in sales and has operations in Asia, Europe and the US. If the acquisition is approved by authorities, Dulux will be the company’s first footprint in Australia and New Zealand.
Nippon president Tetsushi Tado says Dulux will retain its name and will be run as a separate division in the corporate structure. “Patrick and his team have built DuluxGroup into the pre-eminent provider of housing improvement products in Australia and New Zealand with market-leading and iconic brands operating from world-class manufacturing facilities,” he said.
“Nippon intends to maintain the legacy developed by DuluxGroup and facilitate DuluxGroup’s existing vision by leveraging resources of the broader Nippon platform. As a part of the Nippon Group, it will be business as usual and DuluxGroup will still be DuluxGroup.”
Ten years ago, Nippon had a less-than-successful foray into the Australia market, replacing the Wattyl brand at Bunnings, the nation’s largest hardware chain. However, the brand failed to gain traction with Australian consumers. More recently, in November 2017, Nippon briefly flirted with Axalta Coating Systems, discussions that ultimately ended with no formal offer.
In the absence of any superior proposal and subject to an independent expert’s report which concludes that the scheme is in the best interests of shareholders, the board of Dulux unanimously recommends a vote in favour of the buyout.