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Nippon Paint closing in on $9bn Axalta bid

US acquisition would lift Japanese paint maker to fourth place worldwide

Little of Nippon Paint's sales currently relate to automobiles, but a successful buyout of Axalta Coating Systems would change that.

OSAKA -- Nippon Paint Holdings has entered into final negotiations on a tender offer for American company Axalta Coating Systems, a deal that would elevate the Japanese paint maker to No. 4 globally by sales as peers around the world pursue major purchases to compete on scale.

Nippon Paint would likely spend on the scale of 1 trillion yen ($8.91 billion) to make seventh-place Axalta a wholly owned subsidiary. The deal would displace current fourth-ranked RPM International, also of the U.S.

Both parties aim to reach an agreement within the year. Axalta had previously been discussing a merger with the industry leader, Akzo Nobel of the Netherlands, but broke off negotiations Nov. 21. The next day, Osaka-based Nippon Paint said it had offered to buy Axalta.

Nippon Paint President Tetsushi Tado is visiting the U.S. to advance negotiations. The status of the talks remains fluid on some fronts as the parties hash out detailed terms, including an assessment of such risks as pollution from plants coming to light after the purchase.

Axalta's market capitalization reached $9.14 billion on Thursday. While this represents a hefty price tag for Nippon Paint, Japan's interest rates have plumbed rock-bottom territory amid massive monetary easing, making fundraising easier for businesses here.

Nippon Paint posted sales of 514 billion yen -- about $4.59 billion -- for 2016. Most of this came from paints for construction, with automotive applications accounting for just shy of 30%.  About 60% was generated in China or elsewhere in Asia, while the Americas made up less than 10% of the total.

By contrast, most of Axalta's $4.1 billion in sales that year came from automotive coatings in North America. The companies determined that a successful buyout would even sales out more across regions -- reducing Asian sales to just over 40% -- and help shore up weak points for both.

The global paint industry has lately seen numerous acquisitions. Akzo in 2016 bought the industrial coating business of German chemical company BASF. America's Sherwin-Williams acquired compatriot Valspar in June and rose from third place worldwide to second. The world's top three paint makers, now filled out by PPG of the U.S., ring up more than $13 billion in combined annual sales.

If successful, Nippon Paint's buyout would mark the biggest overseas acquisition by a Japanese company this year. The record currently stands with Takeda Pharmaceutical's $5.4 billion purchase of U.S. peer Ariad Pharmaceuticals, according to Recof, a Japanese company offering M&A support.


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