Australia's Wattyl Ltd. (WYL.AU) said Monday it will endorse a A$142 million takeover offer from Valspar Corp. (VAL) after the U.S. paintmaker increased its initial cash proposal by nearly 30%.

In a statement, Wattyl said that Valspar, a global leader in the paint and coatings industry with extensive manufacturing and distribution operations in Asia, has raised its initial May 25 offer of A$1.30 per share, to A$1.67 a share cash, and subject to an independent expert's valuation, recommends shareholders accept the deal.

"The proposed acquisition enables shareholders to realize cash for their Wattyl shares at a significant premium to recent trading levels," Wattyl Chairman John Ingram said. "With global expertise and scale, Valspar will provide Wattyl's customers and employees with significant benefits. Valspar is well positioned to support Wattyl for the next phase of its growth."

Wattyl's largest shareholder, Hunter Hall Investment Management Ltd., which holds around a 19% stake, has come out in support of the new deal, a person familiar with the matter said Monday.

The shares, which have been trading at a slight discount to the initial offer price, rose sharply Monday and were last up 28% at A$1.615. Prior to the A$1.30 offer, the shares were trading around 78.5 cents, making the new offer price more than double that value.

Competition concerns are not expected to be a major stumbling block for the deal, said one trader at an international investment bank in Sydney, despite Wattyl being the second largest paint supplier in Australia, behind Orica Ltd.'s (ORI.AU) Dulux division.

It's a pretty difficult company for the local companies to takeover, for competition reasons, so it's pretty unlikely for there to be a counter offer," said the trader, who declined to be named.

"With all the people on board it's pretty much a done deal," he added.

The deal is also subject to regulatory approval from Australia's Foreign Investment Review Board and the New Zealand Overseas Investment Office.

One analyst said the deal could help improve the market penetration of Wattyl and Vaspar's other products into local markets as part of a major shakeup of the local hardware market set to begin in early 2011.

Valspar supplies paints and stains to U.S. home improvement retailer Lowe's Cos. (LOW), which is in joint venture with Australia's largest retailer Woolworths Ltd. (WOW.AU) to establish a big-box, do-it-yourself retail chain in Australia to compete with rival Wesfarmers Ltd.'s (WES.AU) Bunnings hardware stores.

"Wattyl is a market leader with excellent brands, high quality products and broad distribution across all channels throughout Australia and New Zealand," said William L. Mansfield, Valspar Chairman and Chief Executive Officer in a statement.

"This latest acquisition builds on our increasing presence in the Asia Pacific region and presents an outstanding opportunity for growth."

-By Cynthia Koons & Bill Lindsay; Dow Jones Newswires; +61-2-8272-4691; cynthia.koons@dowjones.com
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