KKR improves offer for Japan's Hitachi Kokusai a second time

The GP has proposed to buy all outstanding shares in the company for JPY3,132 apiece, according to a filing. It initially bid JPY2,503 in April and then upped the offer to JPY2,900 in October. The proposed price represents a 30% premium to the April 25 closing price, but it’s still lower than the JPY3,290 at which Hitachi Kokusai ended November 23.

The stock price increase – the company is up 36.3% year to date – reflects strong financial performance as well as expectations that KKR would improve its offer. 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 a better 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%.

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, Japan Industrial Partners (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 delivered JPY79.3 billion in revenue, with JPY91.5 billion coming from the thin-film division.

For the six months ended September 2017, revenue came to JPY99.6 billion, up 38.1% year-on-year, while net income rose 359.1% to JPY10.5 billion. The thin-film division was responsible for most of the gains. Hitachi Kokusai’s forecast revenue and net income for the current financial year are JPY214 billion and JPY19.9 billion, respectively.

KKR has already completed two tender offers for Japanese companies this year: automotive components manufacturer Calsonic Kansei Corporation and power tools manufacturer Hitachi Koki. JIP specializes in corporate carve-outs and restructurings of Japanese companies, with 20 transactions completed to date.

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