Bain Capital Makes $4B Binding Offer for Japan’s Fuji Soft, Besting KKR Bid by 7%

Bain Capital late on Friday announced a binding offer equivalent to $4 billion for Japan’s Fuji Soft, heightening a battle with US private equity rival KKR for the software maker.

Bain is offering to pay JPY 9,450 ($63) per share for the Tokyo-listed firm, with stock in the company closing at JPY 9,000 per share on Friday, before the offer was announced. KKR in August announced a JPY 8,800 per share tender offer for Fuji Soft, with Bain’s bid representing a nearly 7 percent premium from that level.

The Bain offer is conditional on its receiving support from Fuji Soft’s board of directors, with the Japanese company having yet to comment on the bid.

The Friday offer also comes despite KKR seemingly having blocked potential pathways to success for counterproposals when two of Fuji Soft’s largest shareholders last month tendered their holdings in line with an updated KKR offer. In a statement on Saturday, KKR expressed confidence that its offer remains the most appealing.

“KKR’s offer is superior and is in the best interest of the company and all of its stakeholders. In addition to providing certainty of completion, KKR has a demonstrated track record of collaborating with management teams and employees and unlocking growth for Japanese companies, which contributed to the reasons the Board of Fuji Soft has twice recommended and supported our offer,” a KKR representative said.

Conditions Precedent

In its statement, Bain listed a resolution in support of its tender offer from Fuji Soft’s board of directors as a condition precedent for its formal launch. It also positioned its bid as a way to boost Fuji Soft’s value. Fuji Soft’s board had earlier issued statements supporting KKR’s original offer with the board again recommending shareholders to tender shares under KKR’s amended offer, following that announcement.

“The purpose of the Transaction is to maximize the enterprise value of the Target Company by providing full support to the Target Company through Bain Capital’s design and implementation of growth strategies and business restructuring, as well as personnel support, and is not intended to raise the acquisition price or gather information from competitors, etc.,” Bain said in the statement.

In it amended tender offer in September, KKR announced that Singapore-based 3D Investment Partners and US hedge fund Farallon, which hold a combined 32.68 percent shareholding as Fuji Soft’s largest shareholders, had irrevocably tendered their shares under the offer.

KKR’s amended offer came after Bain Capital in early September had made a bid at around 5 percent above its rival’s original proposal.

With Japanese rules requiring holders of 67 percent of the shares in a company to tender their shares under an offer in order to force a buyout, the commitment by 3D and Farallon effectively blocks Bain’s path to a takeover, unless KKR agrees to withdraw, with the private equity firm led by Henry Kravis and George Roberts having vowed to stay the course.

A number of US private equity firms have been backing buyouts of Japanese companies with an eye, in part, to unlocking unrealised value from real estate assets on their balance sheets, with KKR having nodded to Fuji Soft’s property holdings in its original offer.

“KKR is considering the securitisation of real estate held by the target company and implementing measures to improve sales growth and profitability after the completion of the transaction,” KKR said at the time.

After building up its stake in Fuji Soft in July last year, 3D notified the company’s board that it would solicit take-private proposals and in August revealed a plan to liquidate Fuji Soft’s real estate holdings.

“The liquidation of real estate is likely to result in the realisation of significant gains, which may have a significant impact on the company’s corporate value,” 3D said in a pitch book. “The company plans to sell many of its real estate holdings over the next 1-2 years, and its capital structure could change significantly depending on the quantity of real estate sold and at what price point.”

Working with the Board

Japanese corporate boards have in the past favoured takeover offers which presented the lowest risk of disruption to the existing entity and its workforce, with both Bain and KKR having become major players in Japan’s corporate buyout universe.

In statements to the media in June this year, Bain Capital partner Masashi Suekane said the company intends to invest JPY 5 trillion in Japan over the next five years.

Two weeks ago the US company said it would be taking private mobile phone sales agency T-Gaia in a deal expected to cost more than JPY 140 billion. Also last month, Japanese logistics operator Trancom said it plans to go private in a management-led buyout after endorsing a tender offer from Bain Capital which values the company at JPY 95.8 million.

KKR in 2022 acquired Japanese REIT manager Mitsubishi Corp-UBS Realty, a joint venture of the Japanese conglomerate and the Swiss banking giant which is now known as KKR Japanese Realty Management, for $2 billion. That company manages Tokyo-listed REITs Japan Metropolitan Fund Investment Corporation (JMF) and Industrial & Infrastructure Fund Investment Corporation (IIF).