Carlyle faces activist challenge to Japan Asia Group deal

City Index Eleventh is willing to pay JPY840 per share for the Tokyo-listed company, according to a filing. Carlyle’s offer is JPY600 per share. Japan Asia Group’s stock was at JPY860 as of early afternoon trading on January 15, having gained 9.55% in response to Murakami’s intervention. It was trading at JPY352 prior to Carlyle making its bid last November.

City Index Eleventh claimed that the existing offer is – which involves Carlyle and Tetsuo Yamashita, chairman and CEO of Japan Asia – is unreasonably low. It expressed concern that the deal would enrich Yamashita at the expense of other shareholders. City Index told Carlyle the situation could be resolved by increasing the offer, but to no avail.

Activist investment activity is growing in Japan, which some industry participants expect to benefit private equity as companies become more willing to consider privatizations or asset sales that avert such threats. On the other hand, activist investors have blocked or drawn out PE-backed privatizations by pushing for better terms, Murakami among them.

Funds linked to Murakami are said to have been instrumental in thwarting Bain Capital’s pursuit of printing and IT services provider Kosaido in 2019. Meanwhile, Bain saw off a hedge fund challenge to its acquisition of aged care provider Nichii Gakkan and KKR did the same for high-tech manufacturer Hitachi Kokusai Electric. Both had to sweeten their offers.

Carlyle’s tender offer – which values Japan Asia Group at JPY16.5 billion – is the first part of a two-part deal. Yamashita already owns 11.35% of the company directly and through an asset management entity and he has agreed to sell those shares via the tender. Two other investors, Aizawa Securities and JA Partners, which have 12.56% and 2.45%, respectively, will also sell their positions.

Separately, Japan Asia will facilitate Carlyle's acquisition of an 80% interest in Kokusai Kyogo, Japan Asia's main geospatial information business, and 70% of JAG Energy, which designs, builds, and operates solar power plants. The private equity firm will pay JPY20.5 billion, part of it in cash and part through a share swap. 

Japan Asia has three main business lines: geospatial information, green energy, and reforestation. The bulk of its revenue comes from Kokusai Kyogo, a provider of satellite and aerial imaging as well as terrestrial, water and subterranean surveying services. These are used in public utility management, renewable energy and social infrastructure planning, and assessing disaster risk.

Another subsidiary, Xacti, manufactures cameras used on construction sites, in transport surveillance, and by security personnel.

In green energy, Japan Asia manages its own solar power stations and provides development and maintenance services to clients in Europe. It also conducts environmental and sustainability assessments for real estate developments. In forestation, the company owns about 5,000 hectares of forest in Japan and uses geospatial information to manage these assets.

Japan Asia generated JPY97.9 billion in sales for the 12 months ended March, down from JPY102 billion the previous year. Over the same period, it swung from a net loss of JPY2.5 billion to a net profit of JPY1.99 billion.

Orders received by the geospatial information business dropped 10.8% year-on-year to JPY70.3 billion due to an absence of large-scale projects for Kokusai Kyogo. Meanwhile, sales fell 5.5% to JPY68.4 billion, largely due to reduced revenue for Xacti. The green energy and forestry sales contributions were JPY15.5 billion and JPY13.9 billion, respectively.

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• Topics
• North Asia
• Cleantech
• Buyouts
• Japan
• The Carlyle Group
• activist investor