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Bain Capital has launched an unexpected $4.3bn counterbid for IT company Fuji Soft, reigniting Japan’s most fiercely contested takeover battle of the year with a renewed challenge to rival private equity group KKR.
Senior M&A advisers in Tokyo said the move added yet another twist to a deal that has already tested the limits of what private equity is willing to do in Japan and clears the way for a proliferation of aggressive dealmaking.
Bain plans to raise its offer price for Fuji Soft to ¥9,600 ($63) a share, the private equity firm said on Wednesday, topping KKR’s most recent price of ¥9,451 and valuing the company at close to $4.3bn.
KKR’s bid, which came in just ¥1 higher than Bain’s previous offer, had put it in pole position after its rival’s first approach was rejected by Fuji Soft’s board in November.
The fight between the two foreign private equity groups, which have traditionally avoided overt conflict over Japanese takeover targets, kicked off in August. The deal’s progress, which is being closely watched by companies across the Tokyo Stock Exchange, has pushed Japan into uncharted terrain.
Fuji Soft’s share price rose 1.4 per cent in Tokyo on Wednesday to ¥9,663, in anticipation of the bidding war continuing. A formal announcement of the raised offer, first reported by the Nikkei business daily, is expected as soon as Wednesday evening in Tokyo.
The latest offer is set to test Fuji Soft’s appetite for an extended bidding war and raises questions about which offer is “friendly”. KKR has the approval of Fuji Soft’s board, but Bain’s takeover approach, backed by the company’s founder and major shareholder, Hiroshi Nozawa, will only move ahead if the board approves, said the firm.
“This is definitely starting to flirt with hostile territory, but it’s very clear everyone is trying to avoid exactly that accusation,” said a senior M&A adviser in Tokyo. “Bain is deliberately positioning itself as a ‘white knight’.”
The new offer will disappoint KKR, which thought it was close to clinching a deal. It had already gained control of more than a third of the company’s shares in a previous tender that involved activist funds 3D Investment Partners and Farallon Capital Management selling their stakes.
People familiar with KKR’s thinking said they had thought Bain was in a difficult position, in part because of the Fuji Soft board’s directive that, having had its initial offer rejected, the private equity group should destroy confidential information obtained so far during the process.
In a statement on Wednesday, however, Bain voiced its objection to that provision citing the 2023 revised M&A guidelines and the pressure it puts on companies to remain open to the best deal for shareholders.
Bankers and advisers have called Fuji Soft an ideal private equity target because of the inherent value of the business, a valuable real estate portfolio and the presence of two battle-hardened investors in the stock.
It was 3D, the group’s largest shareholder, that proposed the company go private and solicited offers for its stake. KKR agreed a deal with 3D and announced a tender offer in August, aimed at taking the company private at ¥8,800 a share.
Those plans were thrown into disarray when Bain shocked the market by putting out a non-binding proposal, before following up with a binding offer that was 7 per cent higher than KKR’s.
Crucially, KKR’s existing stake has created a blocking position that means Bain cannot win enough shares to initiate a squeeze-out to take control and would face the prospect of deadlock even if it did gain a sizeable holding.
“If that happens, you would have two significant investors in the company who will not be aligned on the company’s value creation strategy and next steps,” said a person familiar with KKR’s thinking. “This deadlocked situation makes any meaningful decision-making challenging and will have a negative impact on Fuji Soft’s business strategy, customers and employees.”
Fuji Soft did not immediately respond to requests for comment. KKR declined to comment.
