KKR and Bain Capital’s back-and-forth to acquire Fuji Soft has become abnormally competitive for a Japan M&A market that’s used to more staid dealmaking.
On Friday, KKR announced an increased offer of ¥9,451 per share, just ¥1 more than a competing Bain bid. Fuji Soft’s board responded by rejecting Bain’s proposal and endorsing KKR’s offer, which is supported by activist shareholders 3D Investment Partners and Farallon Capital Management.
The process started in August when 3D Investment Partners, the company’s largest shareholder, proposed that Fuji Soft go private (against the wishes of management, according to the company’s founder) and initiated discussions with potential buyers for its stake. Following the outreach, 3D reached an agreement with KKR, which then launched a tender offer for Fuji Soft at ¥8,800 per share.
With Fuji Soft in play, Bain separately aligned with company founder Hiroshi Nozawa, who controls an 18.5 percent stake and had been critical of KKR’s approach.
Bain submitted a non-binding proposal with a 7 percent higher price than KKR’s initial offer. In tandem, Nozawa sent a letter to the board expressing his support for Bain and sharing his “strong sense of discomfort about the way in which Fuji Soft is being led to go private.”
In response, KKR restructured its tender offer to split it into two parts: the first phase of the offer was accelerated and immediately acquired the stakes held by 3D and Farallon, while the second phase remained open for all other shareholders.
With around one-third of outstanding shares under its control, KKR’s first phase ensured Bain would be unable to build a stake large enough to push through its own deal.
Bain countered by replacing its initial non-binding proposal with a new binding offer at the same price, telling the board that the firm “continues to support Fuji Soft as a white knight to the management and founder of the company.”
But, with Friday’s matching bid from KKR removing price differentiation, the board made its decision in favor of the original suitor and rejected Bain.
At this point, Bain could still decide to submit another improved offer, but the question of hostility has become somewhat muddled. Though the firm still has the backing of the company’s founder, any new bid would go against the board’s decision.
To some, a white knight, but to others, a barbarian at the gate?
Whoever wins will pick up a target that has a strong core cloud software business. The sweetener, though, is the company’s real estate assets. A key part of 3D’s initial activist strategy, Fuji Soft’s real estate portfolio is worth close to $1 billion and would likely be monetized post-acquisition.