Activist target Japan Asia Group agrees asset sale to Carlyle

The two subsidiaries are Kokusai Kyogo, a provider of satellite and aerial imaging as well as terrestrial, water, and subterranean surveying services; and JAG Energy, which manages solar power stations and provides development and maintenance services to clients in Europe.

Carlyle will pay JPY23.4 billion for 100% of Kokusai Kogyo and JPY22.4 billion for 100% of JAG Energy, rising to around JPY34.5 billion with the inclusion of additional shares and treasury shares, according to a JAG filing. The Tokyo-listed company’s entire interest in JAG Energy is 65%.

JAG added that it needed to raise capital to improve corporate value, while efforts to drive growth in the two subsidiaries have been stymied by an inability to secure funding from financial institutions.

The company is the target of a JPY26.9 billion takeover bid launched by City Index Eleventh, a group with ties to activist investor Yoshiaki Murakami. City Index Eleventh won enough support for a tender offer, which closed at the end of July, to increase its position in JAG from 15.35% to 58.96%.

This is its second tender offer. The first was withdrawn in March after JAG announced plans to boost returns to shareholders and implement a special dividend. These included divesting Kokusai Kyogo and JAG Energy.

Rising pressure from activist investors is expected to spur more divestments by Japanese corporates, which could create more private equity deal flow. For example, Japan Growth Investments Alliance recently agreed to buy a majority stake in home décor business Francfranc from Seven & i Holdings, the parent of 7-Eleven. This followed calls from an activist investor for divestment or restructuring.

Meanwhile, activists have disrupted PE-backed privatization bids by contesting perceived low-ball bids. This is what happened with JAG, when Carlyle agreed to launch a tender offer in return for the company’s chairman facilitating its acquisition of controlling stakes in Kokusai Kyogo and JAG Energy.

The tender offer valued JAG at JPY16.5 billion and Carlyle would have paid JPY20.5 billion for stakes in the subsidiaries. City Index Eleventh claimed the bid was unreasonably low, so Carlyle and the company chairman doubled it, while adjusting the sale price of the subsidiaries to JPY15 billion. Unmollified, City Index Eleventh submitted its own tender offer.

Carlyle walked away in February when the shares tendered fell short of the target. City Index Eleventh’s offer had no minimum acceptance level.

JAG generated sales of JPY91.1 billion for the 12 months ended March 2021, down 6.9% year-on-year. Over the same period, it swung from a net profit of JPY1.99 billion to a net loss of JPY310 million.

Kokusai Kyogo’s sales were flat at JPY38.4 billion, while net profit rose from JPY276 million to JPY1 billion. Sales at JAG Energy were up 14.5% at JPY7.9 billion, but net profit fell to JPY497 million from JPY4.4 billion.

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