Japanese Paint Tilts To African And Asian Markets

- May 08, 2019-

On April 17, Nippon Paint announced in Osaka that it will acquire the Australian Dulux Group for a total of 30 billion yen ($2.7 billion) and plans to complete the project in August. transaction. The acquisition will be raised through bank loans and will be acquired in cash. With this deal, Japanese paint further broadens its global market presence and firmly develops beyond Asia.


At the press conference on the 17th, Japanese paint president Tian Tangzhe said that although Japanese paints have operations in Asia, Europe and North America, the main market for Japanese paints has been in East Asia, with sales in China and Japan alone. 71% of its annual sales. Among them, China is the largest market for the company's products. In the Chinese market, Nippon Paint operates under the trade name of Nippon, accounting for 42% of annual sales. And if all Asian countries are counted, 86% of annual sales come from Asia. But with the acquisition of Dulux, sales in China and Asia will fall to 34% and 70%. The main raw materials for coatings include Petroleum Resin C9.


For Japanese coatings, it is imperative to alleviate the current revenue mechanism that relies too much on the Asian market. Expanding the external market will not only ensure stable income, but also avoid potential risks. Tian Tangzhe said: "At present, the income of Japanese paints is overly dependent on the Chinese market. In order to avoid potential risks, the company will enter Australia to prepare for more stable growth." Japan Paint believes that the Australian-led Oceania market and Japan Like the European and American markets, the market is also a mature market that can maintain steady growth. Compared with the Chinese market, the Oceania market, despite its low growth rate, is stable and helps to maintain its geographical balance. Therefore, the first step of Japanese coatings to expand overseas is in Australia.


In Oceania, the Dulux Group is the leader in the decorative paint market in this region, especially in Australia and New Zealand, with more than half of the market. In addition, the population of Oceania is still growing as the population moves in. Demand for the coatings market in the region is expected to maintain steady growth. At the same time, Dulux has operations all over the world, with advanced management experience and industrial facilities. Therefore, Japan Paint decided to acquire Dulux.


For Dulux, the purchase price of Japanese paint is difficult to reject. The $2.7 billion bid is 28% higher than Dulux’s closing price on April 16. Therefore, the group's board of directors unanimously agreed to the offer of Japanese paint. At the same time, Japanese paint guarantees the independence of Dulux. The company said that after the completion of the transaction, the leadership, business portfolio, manufacturing and operations of the Dulux Group will not change. The Dulux Group will operate as an independent division of Japanese Coatings and retain the Dulux Group name. This is also welcomed by Dulux.


Graeme Libert, Chairman of the Dulux Group, said: “The Board has carefully considered the strategic choices that the Dulux Group offers to maximize value, including continuing to pursue domestic and global growth as an independent company, and we agree that with Japanese coatings The transaction is in the best interest of our shareholders.” It is reported that the shareholders of the Dulux Group are expected to vote on the takeover offer in late July. If approved, the transaction will be completed in mid-August.


This is not the first time Japan Paint has negotiated an overseas acquisition. The medium-term goal of Japanese paint companies is to “establish an overwhelming position in Asia and accelerate global development” to strengthen existing markets and improve profitability as a means of operation, and to make strides in these directions. In the wake of the acquisition of the coatings industry, Japan Coatings held a merger negotiation with Axalta in 2017. At that time, the estimated acquisition amount would exceed 1 trillion yen, but the two parties failed to reach an agreement on the company's valuation. Tian Tangzhe said that the original acquisition development plan of Japan Coatings was based on Asia, but with the failure of the acquisition of Axalta, the company turned to the area that has never been involved. If the acquisition is successful, the gap between Japanese coatings and AkzoNobel in the global coatings market will be reduced, and the development of each market area will be more balanced, which will further promote and consolidate the company's business. Tian Tangzhe said that the company's ultimate goal is to reduce the proportion of Asian market revenue to annual income to less than 50%. It is conceivable that the Japanese paint acquisition of Dulux is only the beginning.