Wuthelam Holdings Pte., a Singaporean paint conglomerate, signed a 1.3 trillion yen ($12.3 billion) deal to acquire a majority stake in Nippon Paint Holdings, Japan’s largest coatings maker, seeking to create a dominant paints and coatings company in Asia, according to a Nikkei’s report.
Wuthelam will lift its stake to 55% from 39% through a private placement of shares with plans to complete the purchase in January 2021.
Nippon Paint will apply the proceeds from the deal toward taking full control of joint ventures overseeing the duo’s Asian operations, up from the current roughly 50% stakes. The Japanese company also plans to acquire an Indonesian paint-making affiliate of Wuthelam.
Nippon Paint, strong in automotive and construction coatings, logged consolidated sales of 692 billion yen for 2019.
The collaboration between Wuthelam and Nippon Paint dates back to the 1960s. They developed the Asian market through joint-venture operations and have attained top shares in Malaysia and China, which accounts for around 30% of global demand.
In 2014, Wuthelam raised its stake in Nippon Paint to 38.9% from 14.5% to deepen their cooperative relationship.
Now Nippon Paint’s Asian coatings business contributes 50% of consolidated sales and 70% of operating profit. With the Japanese market shrinking, Nippon Paint will accelerate overseas expansion under the auspices of Wuthelam, which boasts a vast network in Asia and elsewhere.
The global market for paints is estimated at 20 trillion yen, but could grow as large as 30 trillion yen. Demand is expected to climb in China and other parts of Asia, as well as in the Middle East, Africa and South America.
The sector is led by PPG Industries and Sherwin-Williams of the U.S., along with Dutch multinational AkzoNobel. The three together control about 30% of the global market. The Wuthelam-Nippon Paint alliance would come in fourth.
More than half of paint-making costs derive from oil-based raw materials. Because larger scales lend to lower procurement costs, the Big Three have been bulking up through acquisitions. Wuthelam and Nippon Paint plan to aggressively purchase targets to build up scale that will rival the larger competition.