Carlyle-backed consortium sweetens offer for Japan Asia Group

Carlyle and Tetsuo Yamashita submitted a bid of JPY600 per share last November, valuing JAG at JPY16.5 billion. On completion, JAG would facilitate Carlyle's acquisition of controlling interests in two environmental services-related subsidiaries for JPY20.5 billion. The payment would comprise cash and a share swap, giving Yamashita sole control of the remaining JAG assets.

City Index Eleventh, an investment firm with ties to activist investor Yoshiaki Murakami, claimed the offer was unreasonably low. It also expressed concern that the deal would enrich Yamashita at the expense of other shareholders. Claiming that its calls for an increase in the offer came to nothing, City Index Eleventh submitted its own tender offer of JPY840 per share.

Carlyle and Yamashita have now responded by raising their bid to JPY1,200 per share, which equates to a market capitalization of JPY32.9 billion, according to a filing. The new offer represents a 241% premium to JAG’s closing price on November 5, the day the first bid was submitted. As of mid-afternoon trading on January 27, the stock was up 7.18% at JPY940.

Yamashita already owns 12.01% of JAG directly and through an asset management entity. Initially, he agreed to sell those shares via the tender and contribute an additional JPY6 million in equity personally and JPY54 million from an investment entity he controls. Those proposed equity contributions have now increased to JPY246 million and JPY2.25 billion, respectively.

The deadline for the tender offer has been extended to February 9. At least 18.3 million shares – a 66.6% stake – must be tendered for the offer to proceed. In addition to Yamashita, Aizawa Securities, which owns 12.56%, has agreed to sell its position.

Carlyle's overall commitment to the deal is rising from JPY37 billion to JPY48 billion. Most of the additional equity will support the larger tender offer. Moreover, the cash payment for stakes in the two subsidiaries will fall from JPY20.5 billion to JPY15 billion even as the size of those stakes increases. Carlyle will own 97.5% of Kokusai Kyogo and 95% of JAG Energy, up from 80% and 70%.

This reflects the fact that Yamashita is effectively selling larger positions in the subsidiaries to fund his increased contribution to the tender. 

“Mr. Yamashita and Carlyle believe that this transaction, in which, through the partnership of both parties and following the delisting, Carlyle will focus on JAG Energy and Kokusai Kogyo, while Mr. Yamashita will focus on the other businesses of JAG, continues to be the only option in order for all of JAG’s businesses to achieve business continuity and sustainable growth,” they said in a joint statement.

JAG 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.

Carlyle is currently deploying its fourth Japan buyout fund, which closed at JPY258 billion earlier this year. It is more than twice the size of the predecessor vehicle.

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