Nippon Paints agrees $12.18bn deal for Wuthelam assets

November 2020 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

November 2020 Issue

Singapore’s Wuthelam Group has agreed a $12.18bn deal to acquire Japan’s leading paint manufacturer, Nippon Paint Holdings Co. Under the terms of the deal, Wuthelam will take majority control, with its stake rising from 39 percent to just under 60 percent.

The deal seeks to create a dominant paints and coatings company in Asia. It is expected to close in January 2021, subject to the approval of regulators in each of the markets where the businesses operate.

Nippon Paint said it will use the funds raised, as well as ¥100bn in cash to buy out Wuthelam from their joint ventures in countries including China, Malaysia and Thailand, as well as acquire Wuthelam’s wholly owned business in Indonesia in a ¥1.285 trillion deal.

“Asia is becoming a key region for the Company’s sustainable growth in terms of both market size and growth rate due to its projected demographic and economic growth leading to increasing demand,” Nippon Paint said in a statement. “The many applications of paint include residential and commercial construction, transport applications such as cars and trains, and infrastructure such as bridges and roads, meaning that demand for paint grows in step with population growth and urbanisation.”

Yuichiro Wakatsuki, chief financial officer of Nippon Paint, said the deal with Wuthelam would “strengthen its balance sheet”, and was expected to result in a 0.6 percent increase in profit margins and over 10 percent earnings per share growth.

The Japanese firm will remain listed, and Wuthelam will not sell the company, said Masaaki Tanaka, chief executive of Nippon Paint Holdings.

Nippon Paints is seeking growth outside its mature domestic market and has prioritised global expansion. Last year, the company acquired Australia’s leading paint manufacturer, DuluxGroup Ltd, in a near $3bn deal. Asia currently accounts for 52 percent of Nippon’s revenue, with 26 percent for Japan, according to the company’s website.

Nippon Paint and Wuthelam have a long history of working together, both formally and informally. The two companies first began working together around 60 years ago. Nippon Paint initially advised Wuthelam’s founder when he was looking to get his business off the ground in Singapore.

The companies continued to work together, setting up a joint venture in 1962, with the Japanese company taking a 40 percent stake. The two companies went on to found other joint ventures across Asia.

In 2006, Nippon Paint tried to raise its stake in 11 of these joint ventures. The partners reached an agreement on three of the ventures, then the global financial crisis erupted. As sales slumped, talks on the remaining ventures were put on hold. However, Wuthelam continued to build its stake in Nippon Paint to 14 percent from 9 percent in 2008.

In 2013, the Singapore company’s attempt to raise its stake to 45 percent was blocked. The following year Nippon Paint offered to let Wuthelam raise its stake to 39 percent in exchange for turning the remaining eight joint ventures into Nippon Paint subsidiaries.

A proxy battle also almost erupted between the two companies in 2018 as Goh Hup Jin, Wuthelam’s former chief executive and current president of Nippon, sought to shake up the company’s board. In March 2018, shareholders of Nippon Paint approved the appointment of 10 board member candidates, including six proposed by Wuthelam.

Richard Summerfield