On the 17th April 2019 DuluxGroup (ASX: DLX) announced to the ASX that Nippon Paints proposed to acquire DuluxGroup Limited via a Scheme of Arrangement for $9.80 per share. This cash consideration includes a $0.15 per share interim dividend, and a potential special dividend of up to $0.26 per share. These dividends would include up to $0.176 of franking credits. The deal is subject to shareholder approval, Australian Foreign Investment Review Board and the New Zealand Overseas Investment Office approval and other conditions. Dulux recommended that shareholders accept the offer.

There will be no management or manufacturing changes as Nippon Paints has no presence in Australia or New Zealand. Dulux says that they will be able to pursue overseas growth opportunities more easily with Nippon Paints considerable resources and global presence at their disposal.

The $9.80 price tag implies a PE ratio of 25.3, a 16.1x FY18 EV / EBITDA ratio, a 27.8% premium to DuluxGroup’s closing price on 16 April and a 32.7% premium to the one-month VWAP of $7.39. This values DuluxGroup’s equity at $3.8 billion and implies an enterprise value of $4.2 billion.

Commenting on the Nippon offer, 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.”

DuluxGroup Managing Director and CEO, Mr. Patrick Houlihan said:

“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. The proposed transaction is an endorsement of the exceptional company that our people have built over a number of years. 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. I am personally excited by the opportunities that we can explore together as we continue to grow all of our ANZ businesses and accelerate our growth ambitions offshore.”

Commenting on the proposed acquisition, Nippon’s President & CEO, Mr. Tetsushi Tado said:

“We are excited by the prospect of welcoming DuluxGroup into the Nippon Group. 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. The combination of DuluxGroup and Nippon will provide further avenues of growth for DuluxGroup and create exciting opportunities for all of the DuluxGroup management team and employees. Nippon intends to maintain the legacy developed by DuluxGroup and facilitate DuluxGroup’s existing vision by leveraging the resources of the broader Nippon platform. As part of the Nippon Group, it will be business as usual and DuluxGroup will still be DuluxGroup.”

The acquisition of DuluxGroup by Nippon Paints gives Nippon a substantial presence in the Australian paint industry. Dulux is by far the dominant player in the industry with a 33.6% market share of the category, despite the presence of large multinationals.

DuluxGroup has an enviable portfolio of brands across multiple categories, although the Dulux brand is by far the strongest.

Nippon paints is the fifth largest paint company in the world with USD $4.3 billion in sales in 2017. Nippon has a strong presence throughout the Asia Pacific, but no presence in Australia or New Zealand. Countries Nippon has a presence in include Bangladesh, China, India, Indonesia, Japan, Korea, Malaysia, Myanmar, Pakistan, Phillippines, Taiwan, Thailand, the United Arab Emirates and Vietnam.

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