Nippon Paint Holdings (NPHD) has officially received approval from its Board of Directors during the August 29, 2023 meeting for the acquisition of shares in two Indian-based paint manufacturers: Nippon Paint (India) Private Limited (NPI) and Berger Nippon Paint Automotive Coatings Private Limited (BNPA), collectively referred to as NPI and BNPA.
The acquisition process involved the execution of a Master Agreement and a Share Purchase Agreement, and the shares of NPI will be acquired by NPHD, while shares of BNPA will be acquired by Nippon Paint Automotive Coatings Co., Ltd. (NPAC), a subsidiary of NPHD.
The acquisition was facilitated through the use of call options, which grant NPHD the right to purchase the Target Companies as outlined in the Master Agreement. This agreement was made with Isaac Newton Corporation (INC), a member of the Wuthelam Group, the parent company of INC, as well as Goh Hup Jin and affiliated entities controlled by Wuthelam, excluding NPHD and its subsidiaries.
The primary motivation behind this acquisition stems from NPHD’s commitment to the Maximization of Shareholder Value (MSV) as its core mission. NPHD is pursuing sustained growth based on the Asset Assembler model to achieve MSV. This strategic move was initially signaled in an announcement made on August 10, 2021, where it was determined that transferring the shares of three companies, namely, NPI (an India-based paint manufacturer involved in decorative paints, industrial coatings, and automotive refinish coatings), BNPA (an India-based automotive coatings manufacturer), and Nippon Paint Automotive Europe GmbH (NPAE, a European-based automotive coatings manufacturer) to INC was essential for enhancing corporate value in the medium and long term.
The decision to transfer these shares was driven by the need for fundamental restructuring in the Indian and European businesses, aligning with a long-term strategic perspective. This transaction effectively shifted the burden of additional investments and expenses required for the short-term restructuring plan onto the Wuthelam Group, mitigating risks and uncertainties associated with the restructuring process.
Despite the share transfer, NPHD continued to provide administrative and management support services through its Group, with management teams seconded to the three companies. The Group closely monitored their financial positions and operational statuses. Remarkably, NPI experienced rapid growth beyond initial expectations following the pandemic recovery, marked by market share gains in decorative paints, strategic marketing investments in states like Tamil Nadu and Karnataka, customer acquisitions in industrial coatings, and recovery and acquisitions in the auto refinish business.
Furthermore, BNPA achieved a positive operating profit in FY2022 ahead of schedule, thanks to changes in management structure, streamlined operations with NPI (including system integration), enhanced profitability through cost management, pricing adjustments in response to raw material cost fluctuations, and the resurgence of the automotive market in India. BNPA is anticipated to maintain strong growth in FY2023 and beyond.
Considering these positive developments, it has been concluded that both NPI and BNPA are well-positioned for sustainable revenue growth and profitability without the need for substantial future investments. Consequently, exercising the call options at this juncture has been deemed the optimal decision from an MSV perspective. NPAE, on the other hand, will continue its restructuring and turnaround efforts under the auspices of the Wuthelam Group.