KKR urges Fuji Soft to take legal action against Bain in $4bn takeover fight

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KKR has called on the board of Fuji Soft to take legal action against Bain Capital’s rival bid for the $4bn Japanese software company, escalating a public battle that threatens the buyout industry’s reputation in the country.

The US-based private equity firm disclosed on Monday that it had asked Fuji Soft “to promptly file lawsuits against Bain Capital seeking an injunction” to stop what it says is a violation of a non-disclosure agreement.

KKR offered close to $4bn for the business in August but Bain’s subsequent efforts to trump the bid have fuelled acrimony, testing new ground in a market unused to public takeover battles between private equity bidders.

It reached a climax in December after Bain launched a shock $4.3bn counterbid and then said it was willing to push ahead without support from Fuji Soft’s board, a rare and high-risk manoeuvre in Japan.

Bain has attempted to position itself as a white knight, backed by Fuji Soft’s founder and major shareholder Hiroshi Nozawa, arguing that the board’s rejection of its ¥9,600-a-share bid was not in the best interests of investors.

However, KKR’s lower November bid of ¥9,451 has had the repeated backing of the board, partly because the group already controls more than a third of Fuji Soft after a previous tender in which it bought stakes owned by activist funds 3D Investment Partners and Farallon Capital Management.

That stake gives KKR the power to block a full takeover by Bain, which could therefore face a deadlock even if it did gain a sizeable holding. 

In supporting KKR’s bid, Fuji Soft’s board has used fears of a possible deadlock between the two firms if Bain’s offer proceeds, as well as an argument that the higher price proposed by Bain does not adequately compensate shareholders for the longer amount of time it could take to complete.

KKR’s request for Fuji Soft to seek an injunction was made to the board on Sunday. KKR said it was based on Fuji Soft’s November directive that, having had its initial offers rejected, Bain should destroy confidential information obtained so far during the process.

“There is no reason whatsoever for Fuji Soft to continue to allow Bain Capital to misuse such a large amount of confidential information,” KKR wrote in a letter to the company’s board and special committee, which is tasked with assessing the bids. The letter was made public on Monday.

Bain has previously objected to the board’s demand that it destroy the information, citing Japan’s guidelines on mergers and acquisitions and the pressure they put on companies to remain open to the best deal for shareholders.

However, on Tuesday, Bain said it had “destroyed” the data “and has sent destruction notices to the advisers, lenders and other parties”.

KKR also asked the board to involve the regulator, saying it suspected “there is a high possibility that Bain Capital is misleading the market and driving up the stock price by stating that ‘Bain will make a hostile tender offer’ even though it is actually unable to execute . . . or it has no intention to do so”. 

KKR suggested that Bain was hoping a rise in Fuji Soft’s share price would cause KKR’s offer to fail, leaving its rival unopposed.

However, KKR said it “will not withdraw our tender offer and privatisation proposal in the face of this apparent interference”.

And on Tuesday, Bain denied KKR’s suggestions and said that “[r]egardless of the destruction of such confidential information” it “plans to continue the tender offer based on publicly available information and other information that does not constitute confidential information”.

Fuji Soft’s shares were up close to 1 per cent on Tuesday, above Bain’s offer price, at ¥9,780, which suggests more bids are expected, according to analysts.

The public fight threatens private equity’s reputation in Japan just as the country seems ripe for a long-awaited surge in dealmaking, spurred by changes in corporate governance, takeover guidelines and the return of inflation.

“We believe such behaviour significantly damages the reputation and credibility of the broader private equity industry that has been built over a decades-long track record of value creation as friendly acquirers,” said KKR in a separate release on Monday.

However, others think the battle is a positive sign for the market.

“The fact this fight is happening in public is itself a good thing. We want more of this . . . not less,” said one senior M&A lawyer in Tokyo.