HKE Holdings, an entity owned by investment funds managed by KKR, intends to make a tender offer for the common shares of Hitachi Kokusai Electric.
Hitachi Kokusai operates two business segments: a video and communication solutions business engaged in video security, IoT high-reliability wireless, and railroad solutions; and a thin-film process solutions business focusing on semiconductor manufacturing equipment as well as systems maintenance and sales of parts and used equipment.
In connection with the tender offer, the offeror has entered into an agreement with Hitachi, the lead shareholder in Hitachi Kokusai, and HVJ Holdings, an entity backed by funds managed/ serviced by Japan Industrial Partners (JIP).
Under the terms of the agreement, following a share consolidation after the tender offer, Hitachi Kokusai will acquire Hitachi’s 51.67 per cent holding of Hitachi Kokusai’s common shares in a share repurchase. Thereafter, Hitachi Kokusai will conduct an absorption-type company split pursuant to which the offeror will succeed to 100 per cent of the company’s thin-film process solutions business. Subsequently, the offeror will transfer 20 per cent of the shares of Hitachi Kokusai to each of Hitachi and HVJ, resulting in 60 per cent, 20 per cent, and 20 per cent ownership of Hitachi Kokusai’s video and communication solutions business for the offeror, Hitachi and HVJ, respectively.
The proposed tender offer price of JPY2,503 per share and the share repurchase price of JPY1,710.34 per share have been determined based on negotiations among KKR, Hitachi and JIP.
Through this joint investment, KKR will collaborate with Hitachi Group to further expand Hitachi Kokusai’s businesses, promote overseas growth, and establish a stable business base through structural reforms. JIP will support the maximisation of the latent growth potential of Hitachi Kokusai’s video and communications solutions business.
The offeror expects to commence the tender offer in early August 2017, subject to regulatory approvals in Japan and other jurisdictions.
Since the total number of Hitachi Kokusai’s outstanding shares (excluding treasury shares) is equal to 102,703,392 (as of 31 March 2017), the proposed tender offer price values Hitachi Kokusai at approximately JPY257.1 billion (approximately USD2.3 billion).
Hiro Hirano, member of KKR and CEO of KKR Japan, says: “Hitachi Kokusai is a world-class provider of video and communications equipment and semiconductor manufacturing solutions and is part of an industry that is set to benefit from the proliferation of three-dimensional NAND flash memory. We look forward to leveraging KKR’s global network, experience and resources, in partnership with Hitachi and JIP, to strengthen Hitachi Kokusai’s business and support its growth as an industry leader on the global stage.”
Hidemi Moue, CEO of JIP, says: “Hitachi Kokusai’s Video and Communication Solutions business has a strong track record of sales of communications and wireless equipment to local municipalities and government agencies in Japan. In partnership with Hitachi and KKR, JIP is fully committed to supporting the further enhancement of the business’ products and services, and realising a significant uplift in growth as a fulfilling workplace for executives and employees, by leveraging our expertise, network, and extensive investment experience in carve-outs from major corporations in Japan.”
KKR expects to make its investment from its Asian private equity fund. KKR has been investing in Japan through its pan-regional private equity funds since 2010.
JIP supports the revitalisation of Japanese companies by providing funds and management support, mainly associated with business carve-outs and restructuring of major corporations. JIP has made a total of 20 investments within Japan across investment targets primarily within the manufacturing industry in diverse areas including food, distribution and services, and with investment experience across various investment methods including business carve-outs and MBOs.