KKR, JIP seek $2.3b buyout of Japan's Hitachi Kokusai Electric

A KKR-controlled entity has proposed to buy all outstanding shares in the company for JPY2,503 apiece, a 3.6% premium to the April 25 closing price, according to a filing. Assuming the tender offer is completed, an agreement between KKR, JIP and Hitachi allows for a share consolidation whereby Hitachi Kokusai will acquire Hitachi’s 51.67% stake through a repurchase priced at JPY1,710 per share.

The next step would see the business split in two. KKR will own 100% of the thin-film division, which serves semiconductor manufacturers, and it will transfer shares in the video and communication solutions division – an equipment supplier to Japanese government agencies, including the Ministry of Defense – to Hitachi and JIP. Each of these parties will hold a 20% stake in the latter business, with KKR retaining 60%.

“We look forward to leveraging KKR’s global network, experience and resources, in partnership with Hitachi and JIP, to strengthen Hitachi Kokusai’s business and support its growth as an industry leader on the global stage,” Hiro Hirano, CEO of KKR Japan, said in a statement.

The tender offer is expected to begin in early August, subject to regulatory approvals. At least 24.8 million shares must be tendered – half of the total outstanding shares, excluding the stake held by Hitachi – for it to proceed. Hitachi Kokusai’s stock closed up 10.7% at JPY2,675 on April 26.

The company generated JPY171.8 billion in revenue for the 12 months ended March 2017, down from JPY180.7 billion the previous year. Net profit dropped to JPY7.45 billion from JPY12.9 billion over the same period. The video and communications division was forecast to deliver JPY73 billion in revenue, with JPY95 billion coming from the thin-film division. Overseas orders – mostly from within Asia – account for 56.4% of revenues across the entire business.

Japanese conglomerates in general are under more pressure to focus on return on equity, and they increasingly recognize that third-party capital and expertise is required to make their businesses globally competitive. As a result, there has been a jump in divestments to private equity firms.

In KKR’s other two tender offers – the JPY498.3 billion buyout of automotive components manufacturer Calsonic Kansei Corporation and the JPY147.1 billion purchase of power tools manufacturer Hitachi Koki – the controlling shareholder sold its entire stake. Hitachi’s ongoing participation in one segment of Hitachi Kokusai draws comparisons with another KKR deal, though not a tender offer.

In 2014, the PE firm bought an 80% stake in Panasonic Healthcare at a valuation of JPY206 billion entry valuation, with parent company Panasonic retaining 20%. KKR is driving global expansion, including the purchase of Bayer's diabetes care business. Earlier this year it sold a 22% interest in Panasonic Healthcare to Mitsui & Co. at a valuation of JPY245.9 billion.

JIP specializes in corporate carve-outs and restructurings of Japanese companies, with 20 transactions completed to date. Past divestment deals include Narumiya International from SBI Holdings, the Vaio PC division from Sony, and internet service provider Biglobe from NEC. Last December, it agreed to sell Biglobe to KDDI Group for approximately JPY80 billion.

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• Topics
• North Asia
• Technology
• Buyouts
• Industrials
• Japan
• KKR
• Japan Industrial Partners
• manufacturing