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Dulux share price to rocket on $9.80 per share acquisition proposal

The DuluxGroup Ltd (ASX: DLX) share price looks set to rocket higher as its board unanimously recommended Nippon Paint’s proposal to acquire the company for $9.80 per share in cash – a 27.8% premium on yesterday’s closing price.

What did DuluxGroup announce to the market?

DuluxGroup announced today that it has entered into a Scheme Implementation Deed with Nippon, under which Nippon proposes to acquire 100% of DuluxGroup shares for $9.80 in cash, inclusive of a $0.15c per share interim dividend intended to be paid by DuluxGroup.

The Offer Price represents a 35.4% premium to the 3-month volume weighted-average price (VWAP) of DuluxGroup shares and has an implied 16.1x FY18 EV/EBITDA acquisition multiple which values DuluxGroup equity at $3.8 billion.

There are no expected changes to DuluxGroup leadership, business portfolio, manufacturing or operations and the deal would essentially give Nippon an entry into the Australia and New Zealand market.

Management believes a takeover would also provide increased opportunity for DuluxGroup to pursue its growth ambitions, leveraging Nippon’s global scale and resources to realise significant synergies for the combined entity.

The DuluxGroup board cited the attractive premium, solid acquisition multiples, value certainty from cash consideration and dividend benefits for shareholders as key factors behind their unanimous recommendation.

How have DuluxGroup shares performed so far this year?

While DuluxGroup shares will rocket on this morning’s news, the DuluxGroup share price has already soared 18.3% so far this year.

This indicates to me that the takeover isn’t simply an opportunistic play by Nippon such as what we saw with the recent Wesfarmers Limited (ASX: WES) move on Lynas Corporation Ltd (ASX: LYC) following heavy equity declines in late 2018.

I’m not personally in the game of punting on mergers and acquisitions and I’d prefer to allocate my capital to other growth alternatives such as Afterpay Touch Group Ltd (ASX: APT).

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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