DuluxGroup backs Nippon Paint’s $3.8bn takeover

Australia’s biggest paint maker says Nippon Paint’s $3.8 billion takeover will allow Dulux to pursue international growth.

Chairman Graeme Liebelt and CEO Patrick Houlihan at Dulux’s trade store in the Melbourne suburb of Clayton yesterday. Picture: David Geraghty

Australia’s biggest paint maker, DuluxGroup, says Nippon Paint’s $3.8 billion takeover offer will allow it to successfully plot international growth ambitions backed by Asia’s largest player.

After its initial approach in January followed by several months of due diligence, Nippon’s $9.80-a-share cash offer revealed yesterday was unanimously backed by the Dulux board, potentially bringing its golden decade- long run on the ASX to an end.

Dulux shares jumped 27 per cent to $9.75, suggesting support from investors for the deal ahead of a shareholder vote in late July.

The buyout would result in Dulux retaining its Melbourne headquarters, factories and leadership team, with Nippon owning few operations in Australia and New Zealand. The bumper deal also restores Japan to prominence among dealmakers in Australia buoyed by ultra-low interest rates as their biggest companies cherrypick high-performing businesses to build global scale.

If Nippon is successful, Japanese companies will have spent $US19bn in the past five years alone over more than 140 deals, with Mitsubishi UFJ’s $4.13bn purchase of Colonial First State in ­October pushing Japanese investment in Australia to its highest level in three years.

Dulux chief executive Patrick Houlihan said he intended to stay in the top role and hoped to tap the opportunity of expanding its business in new offshore markets such as Asia and Britain.

“The real reason they’ve bought us is on the one hand to keep doing what we’re doing as the market leader here, but to help Nippon in its global ambitions, particularly beyond Asia into Western markets where we’ve got considerable skill around consumer brand marketing and the big box retailers like Bunnings,” Mr Houlihan told The Australian.

He pointed to the recent launch of its Selleys product in Indonesia. The company now expects to roll out its products across more countries in Asia with the backing of Nippon’s balance sheet.

“Potentially we could even look at Selleys in other markets given they have a presence in the US,” Mr Houlihan said. The deal could also propel Dulux’s plans to build its British premium brand Craig & Rose and potentially look to fast-track the product across other markets with Nippon’s connections.

Dulux — which listed on the ASX at $2.50 in 2010 following its demerger from mining services interest Orica — has previously highlighted three focus areas this year: defending and growing its market-leading Dulux, Selleys and Parchem businesses in Australia and New Zealand; growing its earnings from its portfolio of “adjacent home improvement” businesses such as its B&D doors division; and seeding new opportunities in offshore markets.

The paint maker remains heavily reliant on the renovation and construction markets, but is relaxed about any housing slowdown in Australia’s capital cities.

“Over 70 per cent of our business relates to the renovation and repair of existing homes and historically we’ve not been a business that has therefore had that inherent volatility that new housing and other factors have,” Mr Houlihan said.

The last major blockbuster deal in the industrial sector — Japan Post’s $6.5bn deal in 2015 for Toll Group — has proved challenging for its owner, as evidenced by a shock $4.8bn writedown in 2017.

However, Nippon’s extensive M&A experience including US deals meant it was well placed to strike a successful acquisition, according to Mr Houlihan.

“I can’t comment on other deals and why they may have been challenging, but Nippon have done their own extensive due diligence and looked at our track record and formed their own view,” he said. “They’ve certainly been very successful as a company with other similar deals they’ve done like their acquisition in the US.”

Nippon generated $7.8bn in sales in the 2018 financial year from operations spread across Asia, Europe and the US. It described Nippon’s acquisition as an “important step” in its global growth ambitions and noted Dulux would be run as a separate division and would retain its name.

“Nippon intends to maintain the legacy developed by DuluxGroup and facilitate DuluxGroup’s existing vision by leveraging the resources of the broader Nippon platform,” said Nippon’s president and chief executive, Tetsushi Tado.