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Two major private equity firms, KKR and Bain, are currently engaged in a fierce battle over a $4 billion Japanese software company, marking a significant development in Tokyo’s M&A landscape.
This ongoing rivalry escalated recently as Fuji Soft’s board decided to stick with KKR’s longstanding bid of ¥8,800, or $59, per share, while also acknowledging Bain’s more recent offer, which included an additional 7%.
“We view Bain Capital’s proposal as a genuine offer and will continue to evaluate it,” stated Fuji Soft’s board in Tokyo on Friday evening.
The endorsement of KKR by Fuji Soft’s board follows a public plea earlier in the week from the company’s founder and major shareholder, Hiroshi Nozawa, who referred to Bain as a ‘white knight’ and urged KKR to step aside.
Analysts and traders note that a head-to-head competition between two private equity giants of this caliber is unprecedented in Japan, where assets are often not valued based on a market for corporate control.
According to sources close to the situation, investors now face a decision between two offers from highly experienced PE firms, with one bid higher than the other. The competitive nature of the bidding process is breaking new ground.
Fuji Soft, a prime target for private equity investment, is said to possess a real estate portfolio worth nearly $1 billion. Additionally, the presence of battle-tested investors such as 3D Investment Partners and Farallon Capital Management, who were key players in the Toshiba control battle, adds another layer of complexity to the situation.
The company, which specializes in cloud software and digital systems, has been in play since 3D Investment Partners proposed taking it private, initiating an auction process that attracted the interest of private equity firms.
KKR, which expressed satisfaction with Fuji Soft’s continued support, initially reached a deal with 3D before launching a tender offer in August to privatize the company.
However, Bain’s unexpected non-binding proposal in September disrupted KKR’s plans, leading the latter to expedite its tender offer and divide it into two parts. The first part involved agreements with 3D and Farallon Capital to sell their stakes, giving KKR control of 32.7% of the stock.
KKR’s second tender offer phase, scheduled for late October to late November, is priced the same and allows shareholders time to evaluate Bain’s offer. It also includes a provision for a mandatory squeeze-out if enough shares are tendered.
Despite Friday’s announcement from Fuji Soft’s board, Bain remains steadfast in its bid, recently submitting a binding takeover offer of ¥9,450 per share, valuing the company at $4.2 billion compared to KKR’s offer of nearly $4 billion.
While the current share price of ¥9,660 exceeds both offers, some bankers and analysts interpret this as a sign of anticipation for a bidding war.
In a statement, Bain reiterated its support for Fuji Soft as a ‘white knight’ to the company’s management and founder, signaling its intention to stay in the race despite KKR’s position.
However, some bankers are skeptical about the possibility of a higher offer, considering that KKR’s acquired shares essentially serve as a blocking position.
“The Japanese market is prepared for this type of competition between PE firms, but no one is willing to risk their reputation by going hostile,” remarked a banker familiar with the deal based in Tokyo.
3D declined to comment, while Farallon did not immediately respond to requests for comments.