KKR sweetens tender offer for Japan's Hitachi Kokusai

The private equity firm has proposed to buy all outstanding shares in the company for JPY2,900 apiece, up from JPY2,503 in the original bid, according to a Hitachi filing. The new offer values the company at approximately JPY298 billion ($2.6 billion). Should the tender offer be successful, KKR would restructure the company in partnership with Hitachi and Japan Industrial Partners (JIP).

The new offer represents a 20% premium to Hitachi Kokusai’s April 25 closing price, but the stock has climbed steadily since the first proposal was announced. The tender did not proceed as planned in August after a third-party committee warned that the terms could be disadvantageous to minority shareholders.

Elliott Management, a US hedge fund known for investing in companies that are in the middle of takeover processes and forcing an improved deal for shareholders, also began building a position in Hitachi Kokusai. The hedge fund disclosed it held a 5% stake in September and subsequently moved to 8.6%. As of late morning trading on October 12, the stock was at JPY3,035.

Shareholders representing at least 24.1% of Hitachi Kokusai’s ownership must accept the offer for the tender to be completed. Subsequent to that, 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 JPY1,870 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%.

Hitachi Kokusai 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.

KKR has already completed two tender offers for Japanese companies this year: a JPY498.3 billion buyout of automotive components manufacturer Calsonic Kansei Corporation and the JPY147.1 billion purchase of power tools manufacturer Hitachi Koki. In each case, the controlling stakeholder agreed to sell to KKR prior to the tender being launched.

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.

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