KKR makes $1.3b tender offer for Japan's Hitachi Koki

The deal is similar in structure to KKR's offer for Calsonic Kansei Corporation in November, where it agreed to buy Nissan Motor's controlling position before launching a JPY498.3 billion bid for the entire business. In this instance, KKR has agreed to buy a 40.25% stake in Hitachi Koki from Hitachi and a further 10.9% from Hitachi Urban Investment, or a total of 51.9 million shares. For the offer to proceed, the GP must acquire at least 67.6 million shares, or a 66.7% holding.

The tender offer is priced at JPY870 per common share, but it assumes the payment of a special dividend of JPY580 per share on completion of the offer, which equates to an overall valuation of JPY1,450 per share, according to a filing. The price represents a slight discount to Hitachi Koki's January 12 closing price, but the stock has gained more than 100% since the start of October, including a jump at the end of December when Hitachi said it was considering a sale among other options.

Hitachi Koki was founded in 1948 and became a consolidated subsidiary of Hitachi in 2009. It manufactures power tools such as drills, saws, grinders and polishers, as well as centrifuges for use in life sciences. The company is looking to expand internationally, acquiring German power tool company Metabo in March 2016 and forming a strategic alliance with North American hardware chain Lowe's Home Improvement the year before that.

Hitachi said that in view of intensifying competition in the power tool industry, it concluded that KKR - with its global resources and expertise - was best positioned to help Hitachi Koki achieve sustained growth and increase its corporate value. Hitachi will redeploy the proceeds into other business units. Japanese conglomerates in general are under more pressure to focus on return on equity, even if this means paring their labyrinthine interests.

"Hitachi Koki is a world-class manufacturer of power tools and a developer of innovative tool technologies. The company is well-positioned for further organic and inorganic growth given the high quality of its products, its high-caliber team and the attractive environment for power tools through cordless and digital trends," said Hiro Hirano, CEO of KKR Japan, in a statement.

The company posted revenue of JPY131.6 billion for the 2016 financial year, down from JPY135.8 billion in 2015. Net income fell to JPY1.12 billion from JPY3.51 billion over the same period, mainly as a result a slowdown in housing investment in Japan and depreciation in the yen.

The tender offer for Hitachi Koki is scheduled to run from late January until late March, which means it will run concurrently with the Calsonic process. The Hitachi Koki investment will come predominantly from KKR's second Asian fund, which closed at $6 billion in mid-2013. It is currently in the market with a third vehicle, targeting up to $7 billion.

The private equity firm's two other Japan deals in Fund II are both corporate carve-outs: Panasonic Healthcare, for which it paid JPY165 billion in 2014; and the DJ equipment business of Pioneer Corporation, said to have been acquired for JPY59 billion in 2015. In each case, the seller retained a minority stake in the business. KKR made a partial exit from Panasonic Healthcare last November.

Three tender offers involving private equity investors are either underway of preparing to launch in Japan. In addition to Calsonic and Hitachi Koki, MBK Partners submitted a JPY102.5 billion bid for golf course operator Accordia Golf at the end of November.

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• Topics
• North Asia
• Buyouts
• Industrials
• Japan
• KKR
• manufacturing