Nippon Paint pours into Australia's DuluxGroup with $2.7 bln offer
* Nippon Paint offers A$3.8 bln cash
* DuluxGroup shares soar 28 pct to record high, offer price
* DuluxGroup board backs bid
* Nippon Paint shares drop to month low
(Adds analyst quote, deal funding and Tokyo dateline; updates
By Tom Westbrook and Junko Fujita
SYDNEY/TOKYO, April 17 (Reuters) - Japan's Nippon Paint
Holdings Co Ltd has proposed buying Australia's biggest
paint maker DuluxGroup Ltd for A$3.8 billion ($2.7
billion), expanding its global footprint though entering
Australia just as a housing boom there falters.
The cash deal was recommended by the Dulux board and sent
its stock soaring 28 percent to the offer price, a record high.
It would catapult Nippon Paint, the world's fifth-largest
paint maker, from a bit player to the biggest paint seller in
the region. It also offers investors in Dulux, whose paint
colours more than a quarter of Australia's homes and buildings,
a chance to cash out at the end of a long construction boom.
"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.
"People are really calling this the top of the market."
The proposal comes after Nippon Paint has scoured the globe
for big deals to buy growth away from its stagnant home market.
It is also the latest in a slew of high-priced Japanese
acquisitions in Australia as cashed-up firms seek exposure to an
economy that has grown for nearly three decades.
However, it lands as the engine of that growth, Australia's
construction sector, begins to sputter.
Building approvals - a forward indicator of demand for home
improvement products - have hit their lowest since 2013 and home
values are tumbling at their fastest pace in a generation.
Dulux stock closed at A$9.74, just shy of the A$9.80 offer
price, while the broader Australian market fell 0.3
Nippon Paint shares fell 3.5 percent in Tokyo as investors
fretted about the financial burden of the purchase, said analyst
Atsushi Yoshida at Mizuho Securities, who added the price seemed
a little expensive.
Nippon Paint said it will borrow money to fund the purchase.
"But this is a good deal for the company's regional
expansion," Yoshida said.
PAINT IT BLACK
Driven by population growth and rising home values, a long
building boom stoked demand for Dulux's paints, garage doors and
garden supplies in Australia, doubling its share price in six
years as its revenue climbed.
The stock had risen 180 percent since it was spun out of
chemical manufacturer Orica Ltd in 2010.
But Nippon Paint's offer comes as the steady pace of its
target's growth slows, with annual revenue growth in 2018
lagging the prior year, even as Dulux acquired new businesses.
"Absolutely they are going to have some exposure," said
Daniel Cuthbertson, managing director at Value Point Asset
Management, referring to the building slowdown. But, he added, a
resilient renovation market and the fact that painting comes at
the end of building jobs would support sales into the future.
Nippon Paint Chief Executive Tetsushi Tado in a statement
issued by Dulux said the Australian company would be run as a
separate division and he expected no change to its leadership,
manufacturing or operations if the deal proceeded.
BIG IN JAPAN
Nippon Paint's move comes amid a surge in outbound Japanese
deals, driven by a mature and shrinking domestic market with
Australia a favourite destination.
Buyouts from Japan in Australia hit $6.5 billion last year,
their highest since 2015, Refinitiv data showed.
Nippon Paint's proposed buyout would be the biggest from a
Japanese entity since Japan Post Holding Co Ltd's
ultimately disastrous purchase of Australian logistics firm Toll
Holdings for A$6.5 billion in 2015.
"Market entry is easier here," said Ian Williams, a partner
at law firm Herbert Smith Freehills who specialises in inbound
deals from Japan, adding Japanese buyers had deep enough pockets
to purchase big players in the smaller Australian market.
In 2017, Nippon Paint was rebuffed in a $9.1 billion play
for U.S. rival Axalta Coating Systems.
Its proposal for Dulux will need approval from foreign
investment regulators in Australia and New Zealand.
The companies expect the deal to close in August. Macquarie
Capital is advising Dulux on the transaction while Nomura is
financial adviser to Nippon Paint.
($1 = 1.3965 Australian dollars)
(Reporting by Tom Westbrook and Byron Kaye in SYDNEY, Junko
Fujita in TOKYO, Kane Wu in HONG KONG and Devika Syamnath in
BENGALRURU; Editing by Richard Pullin and Christopher Cushing)
First Published: 2019-04-17 01:58:52
Updated 2019-04-17 08:18:37
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