KKR Will Have to Lift Hitachi Kokusai Offer, Religare Says

  • It’s ‘only a matter of time,’ Justin Tang writes in note
  • KKR says the conditions of the tender offer remain the same

Private equity giant KKR & Co. will have to sweeten its bid for Japan’s Hitachi Kokusai Electric Inc. to get shareholders to back the deal, according to Religare Capital Markets.

Some 23.2 million shares of the Hitachi Ltd. unit traded above the offer price of 2,503 yen apiece in recent weeks, Justin Tang, a director of global special situations at the brokerage in Singapore, wrote in a note this week. KKR has set a limit of getting at least 24.8 million of the 49.6 million minority shares in the tender offer that it says will start in early August.

The holders of those 23.2 million shares are unlikely to accept KKR’s offer, preferring to stand together “as opposed to caving in,” Tang wrote.

“It’s only a matter of time before turnover above the TOB terms exceeds the lower limit and forces KKR to adjust” the price, he wrote. Hitachi Kokusai closed Tuesday at 2,644 yen, a 5.6 percent premium to KKR’s offer. The shares fell 0.8 percent as of 1 p.m. in Tokyo on Wednesday.

The conditions of the tender offer, including the price, remain the same as KKR’s announcement on June 26, said a spokesperson for KKR in Japan, who asked not to be identified, citing company policy.

Background:

  • KKR offered in April to buy controlling stake in Hitachi Kokusai in bid that valued target at $2.3 billion
  • KKR will start with tender offer for minority holdings; after that, will buy Hitachi’s 51.67% stake in its unit for 1,710.34 yen/share
  • Kokusai to spin off thin-film processing solutions business and KKR will hold ownership of it
  • KKR to then transfer 20% of Kokusai to Hitachi and Japan Industrial Partners, resulting in a 60-20-20 ownership of Kokusai’s video and communications solutions business
  • In April, MUFJ-MS senior analyst Takeo Miyamoto wrote in a note that there’s a chance the takeover could be derailed, given the complexity of the scheme and the preconditions set
  • Hitachi Kokusai is scheduled to hold its AGM Wednesday

— With assistance by Livia Yap

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