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As Tokyo’s M&A market enters uncharted territory, two of the world’s largest private equity firms, KKR and Bain, are locked in an all-out war over a $4 billion Japanese software company.
The fight, which has been raging for more than a year, took a new turn on Friday after Fujisoft’s board decided to maintain support for KKR’s long-standing bid of 8,800 yen ($59) per share, but rejected Bain’s outright rejection. That’s the more recent offer and the 7% extra it puts on the table.
In Tokyo on Friday evening, Fujisoft’s board said it “believes Bain Capital’s offer is a serious one and will continue to consider it.”
The board’s qualified support for KKR comes after a public intervention earlier this week by Fujisoft founder and majority shareholder Hiroshi Nozawa, who called Bain a “white knight” and urged him to step down from the rival.
Analysts and traders say direct competition between two private equity firms of this size is unprecedented in Japan. Corporations and the assets they hold are often not valued as if there were a market for corporate control.
“Investors can choose between two offers, one higher than the other but both from experienced PE firms,” said a person familiar with the situation. “If Fuji Soft’s shareholders bid at a lower price, they must explain to investors exactly why they made that choice. The contest itself is testing important new territory.”
Fuji Soft is an ideal private equity target because people familiar with the matter say it could end up with a real estate portfolio worth close to $1 billion. Another factor is the presence of two battle-hardened investors in the stock, namely 3D Investment Partners and Farallon Capital Management. Both played pivotal roles in the years-long battle for control of Toshiba.
Fuji Soft, which sells cloud software and digital systems, has been active since its largest shareholder, Singapore-based fund 3D, proposed taking the company private, starting an auction process and attracting private equity firms.
KKR, which said on Friday that it was happy to receive Fujisoft’s continued support, first signed a contract with 3D and then announced a tender offer with the goal of taking the company private in August of this year.
Those plans were thrown into disarray when Bain made a non-binding offer last September, sending Fujisoft shares soaring and sending shockwaves through markets.
In response, KKR accelerated its bid and split it in two, the first part of which 3D and Farallon Capital agreed to sell their stake. This means that as things stand, KKR owns 32.7% of the stock.
KKR’s second-half tender offer is scheduled to run from late October to late November, will have the same price and give shareholders time to evaluate Bain’s moves. There is also a requirement to have enough stock to trigger a foreclosure.
But last week Bain followed up its initial planned offer with a binding takeover offer for Fuji Soft for 9,450 yen per share, casting the situation once again into doubt. Bain’s bid would value the group at $4.2 billion, compared to KKR’s closer to $4 billion.
The company is currently trading at 9,660 yen, above both offers, which some bankers and analysts say indicates a belief that the bidding war is intensifying.
Bain said in a statement that it “continues to support Fujisoft as a white knight for the company’s management and founders,” but shows no signs of resigning despite the board’s announcement Friday.
But despite the stock price optimism, other bankers poured cold water on the idea of another higher offer as the shares KKR has already acquired represent a de facto blocking position.
“The Japanese market is ready for this kind of fight among PE firms, but no one is willing to risk their reputations turning hostile,” said a Tokyo-based banker with knowledge of the deal.
3D declined to comment. Farallon did not immediately respond to a request for comment.
