PRINT THIS PAGE Big is beautiful04/10/2006. Source: Asia Private Equity Review (APER).
Softbank’s acquisition of Vodafone Japan had made a mark in Asian leverage buy-out, says the Asia Private Equity Review. It was the largest leveraged buyout (‘LBO’) in Asia – Softbank Corp’s acquisition of the world’s biggest mobile phone operator’s Japan unit, Vodafone KK. In mid March, Softbank announced a ¥1.8 trillion (US$16.4 billion) commitment for taking over the entire operation of Vodafone KK.
The deal was more than six times of the transaction sum commanded by Japan Telecom when it was consummated back in August 2003, then the largest buyout in Japan. In Asia’s corporate takeover register, the acquisition of Vodafone KK is not only the largest transaction in the telecommunications industry, but is also the largest LBO. Softbank’s ability to secure loans of a staggering ¥1.1 trillion to ¥1.2 trillion, underscores LBOs are catching on in Asia, and Japan is becoming the showcase market. Vodafone KK came to Softbank, Japan’s largest investor in the information technology sector, when it was scouting for new investment opportunities.
In November last year, Softbank was one of the four establishments that was received a mobile licence. It set the scene for Softbank to hunt for its prey. Currently, Japan’s mobile phone market is dominated by NTT DoCoMo which accounts for 56% of the market share; while KDDI takes up 24%. Vodafone KK which came to the Land of Rising Sun in 2001, captures an approximate 17%. In the six months ending September 2005, it reported a 55% drop of its operating profit, down to £191 million (US$344.04 million). Softbank saw a buyout opportunity that would further advance its corporate agenda.
In taking up the 97.7% stake in Vodafone KK, Softbank employed a multitude of avenues to raise the required capital. Based on the prevalent response, there are no shortage of institutions that are willing to provide the non-recourse loans. Softbank will fork out ¥200 billion for Vodafone KK’s common shares. To match this colossal sum, Softbank has recently sold 173,000 shares of Yahoo!Japan and raised an approximate ¥23.3 billion.
Yahoo! Japan, in which Softbank continues to hold 41.3% after its recent disposal of shares, will take up preferred shares in committing ¥120 billion. Vodafone has not entirely left its operations in Japan. Through its Vodafone International Holdings BV, it continues to hold an equity interest. Vodafone International will provide ¥400 billion, of which ¥300 billion will be in the form of preferred shares and equity warrants while the residual ¥100 billion will come in as subordinated loans.
The largest LBO by an Asian corporate investor attracted institutions across the globe to provide the required ¥1.1 trillion to ¥1.2 trillion loan that Softbank was seeking. Deutsche Bank AG and Mizuho Corporate Bank will each provide loans of more than ¥200 billion, while Citibank N.A., Goldman Sachs Group Inc., WestLB AG and Calyon will each offer loans of between ¥100 billion and ¥200 billion (fig.31).
LBOs in Japan have come of age. In August 2003, RHJ International, then known as RHJ Industrial Partners, led a consortium of investors, including Newbridge Capital, TVG Capital Partners and PPM Ventures (which had since ceased operations in Asia) and committed ¥261.3 billion for taking over the fixed line business of Japan Telecom. The deal secured facilities that amounted to ¥224 billion. Ten months later, in June 2004, The Carlyle Group and Kyocera Corp. committed ¥220 billion to acquire DDI Pocket Inc. from KDDI Corp. The investors raised senior secured debt that amounted to ¥198 billion.
The leverage that institutions are prepared to commit to Softbank’s acquisition in Vodafone KK, is by far the largest (fig. 32). It is a statement of investors’ assessment on the future prospects of Vodafone KK, as well as the economic health of Japan.
Asia Private Equity Review (APER) is the foremost voice on matters related to private equity/venture capital in the region. Well-recognised as being the singular source for accurate and timely news, in-depth analysis and global perspectives, APER is published by the Hong Kong-based Centre for Asia Private Equity Research. For further information please visit their website at www.asiape.com or email them at info@asiape.com
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