Australia’s biggest paint manufacturer could fall into Japanese hands should a takeover offer for the company be accepted by shareholders.
In its latest announcement, DuluxGroup said it had entered into a Scheme Implementation Deed with Japanese giant Nippon Paint Holdings under which Nippon proposes to acquire all of Dulux through a scheme of arrangement for a cash price of $9.80 per share.
The offer, which would value Dulux at $3.8 billion, represents a 27.8 percent premium on Dulux’s closing price of $7.67 on April 16 (the day before the offer became public) and a 35.4 percent premium to the three month weighted average price of Dulux shares at $7.24.
It would also represent an almost fourfold gain for long-term shareholders since the company listed on the stock exchange at $2.50 per share after de-merging from Orica in 2010.
A global leader in the paints and coatings industry, Nippon had worldwide sales of $7.8 billion last calendar year, and has operations across Asia, Europe and the US.
The company does not, however, have any material operations in Australia or New Zealand.
Under the deal, Dulux will be run as a separate division within Nippon and will retain the DuluxGroup name, its Melbourne headquarters, its factories and its leadership team.
Nippon has said it will be ‘business as usual’ for Dulux as part of Nippon, but added that the combination of Nippon and Dulux will provide further avenues of growth for Dulux and will create broader opportunities for Dulux’s management and staff.
Opposition senator Kim Carr tweeted that Dulux had assured him that the transaction would have ‘no impact on jobs, R&D and manufacturing in Australia’.
Dulux has previously highlighted its main priorities around the three focus areas of defending and growing its core Dulux, Selleys and Parchem businesses in Australia and New Zealand, growing its earnings portfolio in adjacent home improvement areas and seeking new opportunities offshore.
Whilst the paint maker is exposed to the construction market downturn, it says that 70 percent of its business involves the repair or renovation of existing homes.
In a statement, the Dulux board recommended that shareholders accept the proposal on the basis that the premium offered and the acquisition multiples were attractive.
“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,” DuluxGroup Chairman Graeme Liebelt said.
“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.”
Subject to finalisation of the interim result, the Dulux Board intends to declare and pay a fully franked interim dividend of up to $0.15 per share in respect of the six months ended 31 March 2019, as well as one or more fully franked special dividends totalling in aggregate up to $0.26 per share.
The company is also considering the timing of the payment of the special dividend(s) and will provide an update on this following finalisation of its interim result. The cash amount of the interim and special dividends would reduce the cash price of $9.80 per share.
The deal is subject to a number of conditions, including shareholder and court approval.
Shareholders are expected to vote on the offer in July and the takeover scheme has an indicative implementation date of August.