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US Ripplewood in exclusive talks to buy Japan Telecom but outcome remains uncertain

US private equity firm Ripplewood has entered into exclusive talks to buy the Japanese fixed line telecom business, Japan Telecom, from Vodafone. If completed this deal would represent the largest ever leveraged buy-out in Japan.

But both parties have stressed that the transaction is yet to be finalised, with the Financial Times citing disagreements over price as a potential stumbling block.

Early indications of a Y300bn price tag have now fallen closer to Y260bn. Structural changes in the fixed line business; the rising dominance of mobile phones and an increasingly gloomy outlook in Japan's economy in general, have all depressed the company's valuation since talks began earlier this year.

There is also some doubt about Ripplewood's ability to secure financing. The private equity firm is believed to want to fund about 80 per cent of the deal though bank debt. Even if the sale is finalised at Y260bn, the Y200bn of required debt would still be unprecedented for increasingly risk-averse Japanese banks.

If complete, this transaction would allow Vodafone to quit the troubled Japanese fixed-line telecoms industry to focus on its more profitable core operations. But the fate of the deal still lies very much in the balance as the mobile giant is under no pressure to force through the disposal at an undesirable price.

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