Bidder cans offer for paintmaker

MELBOURNE - South Africa's Barloworld will let its A$322 million ($395 million) bid for Australian paintmaker Wattyl lapse after it was opposed by the competition regulator, sending Wattyl shares down as much as 14 per cent.

The combined business would have become Australia's largest supplier of architectural and decorative paints, overtaking top company Orica, had the merger been approved.

Industrial group Barloworld launched its bid in February, topping a rival offer from investment firm Allco Equity Partners which later withdrew from the contest.

"I would have thought Allco might come back in," Constellation Capital Management analyst Peter Chilton said. "I get the impression that Wattyl was lifting their game, so they could still become a more formidable competitor to Orica."

Allco declined to comment on whether it would renew its interest.

Barloworld's paint operations have struggled for profitability in Australia, while Wattyl this year posted a 20 per cent first-half profit slide as it restructured in a market hit by a housing slowdown and weak consumer sentiment.

Barloworld chief executive Tony Phillips said the company would now restructure its Australian coatings business and reduce investment in the country. But it remained committed to the Asia-Pacific region.

Wattyl shares plummeted to a low of A$2.78 before closing 24Ac weaker at A$3.01.

The Australian Competition and Consumer Commission said a merged company, whose brands would include Wattyl, Solver, Taubmans and White Knight, would have more than half of total architectural and decorative paint sales.

The merged company and Orica, which supplies Dulux, British Paints, Berger and Walpamur, would account for about 90 per cent of the market.

"With only the merged firm and Orica to turn to for well-recognised and nationally distributed brands, paint resellers and trade painters would likely face higher prices, which would ultimately be passed on to end consumers," said commission chairman Graeme Samuel.

The commission rejected a proposal by Barloworld to sell its Bristol paint business to ease competition concerns. Barloworld said the commission wanted it to sell even more assets, which would have destroyed the business logic of the deal.

Barloworld had offered A$3.80 a share in cash, or A$3.72 adjusted for a dividend, for Wattyl, which said yesterday it was confident about its prospects as an independent company.

It reaffirmed its earnings and cost savings targets and said the board intended to meet next week to confirm payment of a full-franked special dividend of 40Ac per share.

- REUTERS