Nippon Paint agrees $12bn tie-up with its largest shareholder

Nippon Paint has agreed a $12 billion (€10.2 billion) deal with its largest shareholder – a private company founded by one of Singapore's richest billionaires - that will combine two of Asia's biggest paints and coatings groups into a regional titan.

The newly consolidated group is expected to continue with an aggressive programme of global acquisitions, through which Nippon Paint paid more than $3 billion for paint-makers in Australia and Turkey last year. The Japanese company said on Friday that the purpose of the deal was to make "more ambitious moves" to enhance shareholder value.

Under the terms of the deal, announced on Friday in Tokyo, Nippon Paint will issue new shares to Singapore's Wuthelam Holdings – the paints giant founded by 93-year-old Goh Cheng Liang that has already built a 39.6 per cent stake in the Japanese group. Mr Goh's company has been entwined with Nippon Paint over a 50-year relationship and taken an increasingly active role in its strategic direction. His son, Goh Hup Jin, was chairman of Nippon Paint between 2018 and 2019.

The $12.2 billion third-party share allotment will, by January, raise Wuthelam's stake in Nippon Paint to 58.7 per cent of outstanding shares, building on a process that began over a decade ago and has seen the Singaporean group steadily increase its stake and use that as leverage to gain a greater influence over the board.

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In 2018, Wuthelam exerted unexpected pressure on Nippon Paint’s board, pushing for a bigger voice and calling for five of its candidates to be appointed as outside directors. The paint maker’s shares have gained almost 52 per cent since the start of the year as the market anticipated even closer structural ties between the partners.

Investors have described Wuthelam’s steady increase of influence over Nippon Paint as a form of “backdoor listing” for the Singaporean group.

In a circular deal structure, the majority of the funds raised from the share issuance will be deployed by Nippon Paint to buy out a series of Asian joint ventures that it has established over the years with Mr Goh’s company.

House paints

The success of those JVs, which number among the dominant participants in China, India and several southeast Asian countries, has been driven by the long-term growth of those economies – in particular by demand for house paints where Nippon Paint's products are highly competitive. The deal will include the Japanese group acquiring, for $2 billion, Wuthelam's wholly owned business in Indonesia.

Masaaki Tanaka, Nippon Paint's chief executive, told a press conference in Tokyo that the deal would allow the companies to "accelerate our growth as a genuine single team".

Mr Tanaka warned, however, that the effects of Covid-19 had been severe, particularly for the automotive paint business which would normally have been expected to deliver strong growth in China and other markets.

Nippon Paint will remain listed on the Tokyo Stock Exchange after the deal is completed, in a practice that continues to draw heavy criticism from proponents of better corporate governance in Japan. The Japanese equity market has a significant number of companies where a single dominant shareholder – often the parent company in a conglomerate-style business group – holds a stake large enough to make decisions against the interests of minority shareholders.

- Copyright The Financial Times Limited 2020