Baring Asia pursues privatization of Japan's Pioneer

It was announced in September that the private equity firm would inject up to JPY60 billion into Pioneer, including an initial bridge loan of JPY25 billion. The revised agreement will see Baring invest JPY77 billion – of which JPY25 billion is a debt-for-equity swap – and then make a cash offer of about JPY25 billion to take the company private

Baring will acquire 1.54 billion shares in the first phase of the transaction, paying JPY50 apiece, according to a filing. This will give it a 80.3% voting interest ahead of the take-private offer. Pioneer's stock has declined 62% since the start of the year, closing at JPY88 on December 7 to give the company a market capitalization of JPY33.7 billion.

The investment is intended to secure working capital and bring Pioneer, which is grappling with deteriorating cash flow, back to a sound financial position. Once the company is under private ownership, more comprehensive changes will be implemented, including a review of business lines, structural reforms, and an overhaul of management.

"We are confident that the combination of our investment and management support offered under the Pioneer revitalization plan will enable Pioneer to fully realize the potential of its innovative technology, well-established brands, and employees," Jean Eric Salata, CEO of Baring, said in a statement.

Pioneer was founded in 1937 and rose to prominence in the 1980s with the introduction of laser discs that revolutionized home entertainment and the world's first car CD player. More recently, the company has invested heavily in car navigation systems and plasma displays, but it has struggled to make these business lines sustainable in the face of rapidly evolving technologies.

Revenue for the 2018 financial year reached JPY365.4 billion, down from JPY386.7 billion in 2017 and JPY449.6 billion in 2016. Over the same three-year period, the company has swung from a net profit of JPY731 million to a net loss of JPY7.12 billion, while debt has risen from JPY37.3 billion to JPY50 billion. There was negative free cash flow of JPY17.2 billion.

Pioneer has previously divested assets to private equity, with KKR picking up a majority stake in its DJ equipment business in 2014. Baring agreed to acquire the company's audio-video operations the same year through a joint deal with Onkyo Corp, but the investment was abandoned when Pioneer and Onkyo decided to negotiate directly without a financial sponsor.

Baring is in the process of raising its seventh pan-regional fund, which has a hard cap of $6.5 billion. A first close of $4.5 billion came in July.

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• Topics
• North Asia
• Buyouts
• Industrials
• Japan
• Baring Private Equity Asia
• manufacturing