By Sonali Paul
MELBOURNE, June 28 (Reuters) - DuluxGroup, Australia's biggest paints business, may be seen as a juicy takeover target after peer Wattyl agreed to be bought for a big premium, but also faces stiffer competition from its beefed up rival.
The DuluxGroup paints and garden care business is set to be spun off to shareholders by explosives maker Orica Ltd next week, with a vote on the plan set for July 8.
The move comes as U.S. company Valspar Corp agreed to buy DuluxGroup's smaller rival Wattyl for A$142 million ($124 million) on Monday, a 33 percent premium to Wattyl's previous close and double Wattyl's price a month ago.
Wattyl managed to coax Valspar up from an approach at A$1.30 a share to an offer of A$1.67 a share over the past month, worth 21 times forecast earnings per share for the year to June 2010.
Analysts said DuluxGroup is unlikely to trade at that level when it lists on the Australian bourse on July 12, but it could get at least some takeover premium built in.
'It's a two-edged sword. The bull argument is (the Wattyl deal valuation) is great for the underlying value of the paint business here,' said George Clapham, managing partner at Arnhem Investment Management, which owns shares in Orica.
'But you still have the issue of Valspar being a more aggressive or strong competitor in the market.'
Macquarie values DuluxGroup at A$1.3 billion, or 16 times forecast earnings for 2010.
That would be a difficult multiple to justify for a business that faces slow growth and a business that is unlikely to be allowed to make any major acquisitions in Australia in paints, as it already has a 40 percent market share.
Only takeover speculation could push it up that high.
There has been talk in the past that Orica had been approached by suitors for DuluxGroup. For any eyeing DuluxGroup now, the Wattyl deal sets a high benchmark.
'Larger coatings and chemical companies might find Dulux attractive,' said an analyst who declined to be named as he is not authorised to talk to the media.
Dutch group AkzoNobel, the world's No.1 paint maker, is seen as the most likely suitor as it makes Dulux paints outside Australia.
Orica is being advised by Goldman Sachs JBWere and JP Morgan on the DuluxGroup spin-off.
($1=1.143 Australian Dollar)
(Editing by Lincoln Feast)
((sonali.paul@thomsonreuters.com; +61 3 9286 1419; Reuters Messaging: sonali.paul.reuters.com@reuters.net)) Keywords: DEALTALK/ORICA DULUXGROUP (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
MELBOURNE, June 28 (Reuters) - DuluxGroup, Australia's biggest paints business, may be seen as a juicy takeover target after peer Wattyl agreed to be bought for a big premium, but also faces stiffer competition from its beefed up rival.
The DuluxGroup paints and garden care business is set to be spun off to shareholders by explosives maker Orica Ltd next week, with a vote on the plan set for July 8.
The move comes as U.S. company Valspar Corp agreed to buy DuluxGroup's smaller rival Wattyl for A$142 million ($124 million) on Monday, a 33 percent premium to Wattyl's previous close and double Wattyl's price a month ago.
Wattyl managed to coax Valspar up from an approach at A$1.30 a share to an offer of A$1.67 a share over the past month, worth 21 times forecast earnings per share for the year to June 2010.
Analysts said DuluxGroup is unlikely to trade at that level when it lists on the Australian bourse on July 12, but it could get at least some takeover premium built in.
'It's a two-edged sword. The bull argument is (the Wattyl deal valuation) is great for the underlying value of the paint business here,' said George Clapham, managing partner at Arnhem Investment Management, which owns shares in Orica.
'But you still have the issue of Valspar being a more aggressive or strong competitor in the market.'
Macquarie values DuluxGroup at A$1.3 billion, or 16 times forecast earnings for 2010.
That would be a difficult multiple to justify for a business that faces slow growth and a business that is unlikely to be allowed to make any major acquisitions in Australia in paints, as it already has a 40 percent market share.
Only takeover speculation could push it up that high.
There has been talk in the past that Orica had been approached by suitors for DuluxGroup. For any eyeing DuluxGroup now, the Wattyl deal sets a high benchmark.
'Larger coatings and chemical companies might find Dulux attractive,' said an analyst who declined to be named as he is not authorised to talk to the media.
Dutch group AkzoNobel, the world's No.1 paint maker, is seen as the most likely suitor as it makes Dulux paints outside Australia.
Orica is being advised by Goldman Sachs JBWere and JP Morgan on the DuluxGroup spin-off.
($1=1.143 Australian Dollar)
(Editing by Lincoln Feast)
((sonali.paul@thomsonreuters.com; +61 3 9286 1419; Reuters Messaging: sonali.paul.reuters.com@reuters.net)) Keywords: DEALTALK/ORICA DULUXGROUP (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.