KDDI Offers $2.7 Billion to Buy Out Jupiter With Sumitomo

KDDI Corp. (9433), Japan’s second-biggest mobile-phone company, climbed the most in 19 months in Tokyo trading after announcing a buyout plan of Jupiter Telecommunications Co. (4817), or JCOM, with Sumitomo Corp. (8053)

The carrier surged 5.5 percent, the biggest gain since March 16, 2011, to 6,370 yen at the close of trading in Tokyo. KDDI and Sumitomo, which already own a combined 71 percent JCOM stake, offered 216 billion yen ($2.7 billion) for the remaining shares, they said in a statement yesterday.

The deal values JCOM at 759 billion yen and will also fold KDDI’s Japan Cablenet Ltd., which controls 12 percent of the country’s cable TV market, into JCOM, giving the merged operator a 53 percent share, according to the companies’ joint presentation yesterday. Consolidating JCOM will add about 60 billion yen to KDDI’s operating profit, Hitoshi Hayakawa, an analyst at Credit Suisse Group AG in Tokyo, wrote in a note to clients yesterday.

Buying out JCOM is “a super deal that should resolve all uncertainty over business strategy,” the analyst wrote.

KDDI yesterday kept its annual earnings forecasts unchanged. The company projects operating profit of 500 billion yen for the 12 months ending March 31, 2013, compared with 477.6 billion last fiscal year. The carrier reported yesterday that first-half operating profit fell 13 percent from a year earlier to 231 billion yen.

Seeking Control

The mobile phone services provider paid about 363 billion yen in 2010 to buy 38 percent of Jupiter from billionaire John Malone’s Liberty Global Inc. The purchase spurred Sumitomo to raise its stake in the cable-television operator two months later to 40 percent from 27 percent through an offer to minority investors as it vied with KDDI for control.

In that deal, Sumitomo offered investors 139,500 yen per Jupiter share, setting an enterprise value of 6.5 times earnings before interest, tax, depreciation, and amortization based on 2012 earnings estimates, said Justin Tang, a Singapore-based analyst at Churchill Capital.

The current 110,000 yen per share offer implies enterprise value of 5.4 times ebitda based on earnings forecast for two years from now, Tang said. The multiple is in line with the valuations across the industry, which have slumped, he said.

“The offer price is not without merit to valuation,” Tang said. “It falls within the valuation of Jupiter’s advisers and the domestic peers have shrunk since Sumitomo’s partial offer in 2010.”

Staying In

KDDI spokesman Yosuke Fukuma said his company and Sumitomo relied on the valuations by Mitsubishi UFJ Morgan Stanley Securities for the offer pricing.

“The most important thing is that you’re not seeing the companies cashing out,” Fukuma said.

Under the offer for JCOM, KDDI will invest 70.9 billion yen, and a venture being set up by the Tokyo-based phone company and Sumitomo will pay about 145 billion yen, bringing each company’s stake to 50 percent, according to the statement.

KDDI will finance the acquisition with cash and borrowing, according to the statement. The carrier had about 100 billion yen in cash, near cash and short-term investments as of June 30, while Sumitomo had about 833 billion yen.

JCOM dropped 2.2 percent, the most in two months, on the Jasdaq Securities Exchange, to 108,800 yen. Sumitomo gained 1.4 percent to 1,090 yen.

To contact the reporters on this story: Mariko Yasu in Tokyo at; Yuriy Humber in Tokyo at

To contact the editor responsible for this story: Michael Tighe at

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