KKR Tops Bain Bid by Narrowest of Margins in Second Tender Offer for Fuji Soft

US private equity giant KKR on Friday announced an increase in its tender offer price for Japan’s Fuji Soft, narrowly eclipsing Bain Capital’s competing bid for the Tokyo-listed systems developer.

KKR expects to begin the second stage of its two-stage tender offer as soon as the middle of this week at a price of JPY 9,451 per common share, the Manhattan-based firm said in a release. The new offer price represents a mere 1-yen premium to Bain’s October binding offer of JPY 9,450 per share, which valued Fuji Soft at $4 billion. Earlier this month, KKR acquired 33.97 percent of the voting rights at JPY 8,800 per share during the first-stage exercise.

Fuji Soft’s board of directors on Friday resolved to support the second tender offer and to recommend that shareholders and share option holders tender their shares and share options. The board also resolved to oppose Boston-based Bain’s proposal, KKR said, with both resolutions passing by unanimous vote.

“We are grateful to have Fuji Soft’s continued trust and recommendation for KKR’s second tender offer,” said KKR Japan CEO Hiro Hirano. “We aim to complete the privatisation swiftly so that we can turn our focus to working closely with the company and its employees to enhance its corporate value and long-term success.”

Accelerated Process

With Fuji Soft’s TSE-traded shares having remained above the price of the first tender offer, KKR said it raised the tender offer price to JPY 9,451 with the aim of accelerating the privatisation process. The new price represents a premium of 125.8 percent to the average closing price for the 12 months to 2 October 2023 — the last full trading day before news of a potential tender offer began to surface in media reports.

All shareholders and share option holders who tendered into the first tender offer are to be “made whole” if the second tender offer succeeds and KKR achieves a 53.22 percent stake across both tender offers, according to KKR.

The buyout giant in August announced a JPY 8,800 per share tender offer for Fuji Soft, prompting Bain to reveal plans to make its own binding counter-offer. Before it managed to do so, however, KKR in September cinched up support for the tender offer from Fuji Soft’s two largest shareholders, Singapore-based 3D Investment Partners and US hedge fund Farallon, together holding a combined 32.68 percent.

Despite KKR seemingly having blocked potential pathways to success for counter proposals, Bain in October announced its binding offer of JPY 9,450 per share, conditional on its receiving support from Fuji Soft’s board of directors. KKR’s first tender offer saw Fuji Soft’s advisors, directors and officers tender roughly 90 percent of their share options.

Real Estate Agenda

KKR has said it will finance the Fuji Soft tender offer through its $15 billion Asian Fund IV, which is focused on private equity transactions across the Asia Pacific region.

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, 3D Investment Partners notified the company’s board in July of last year 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.”