Ripplewood Two For Two In Japan –

Capping off another successful investment in Japan, Ripplewood Holdings LLC agreed to an exit for its Japan Telecom portfolio company, selling the business to Softbank Corp. in a deal that will give the business a valuation of 340 billion ($3 billion).

The sale comes three months shy of a year following the buyout shop’s acquisition of the business from Vodafone Group plc, in which Ripplewood grabbed a control stake for 262 ($2.2 billion), with an equity contribution of 53 billion.

The transaction represented a breakthrough deal for the LBO industry in Japan, as it was the first to utilize leverage to such a great extent. Ripplewood brought in 11 debt providers to finance the transaction, with Citibank and J.P. Morgan Securities Asia taking the lead, and help coming from Japan’s three largest banks, Mizuho Corporate Bank, The Bank of Tokyo Mitsubishi and The Sumitomo Mitsui Banking Corp.

(The transaction won Ripplewood Buyouts’ Emerging Market Deal of the Year.)

With a 53% stake in Japan Telecom, Ripplewood is the controlling stakeholder in the business. Other investors include Goldman Sachs & Co., Newbridge Capital, PPM Ventures, and Telecom Venture Group, among other, smaller shareholders.

At the time of the transaction, Ripplewood Managing Director Jeffrey Hendren told Buyouts, “We saw an enormous opportunity in the fixed-line, broadband market [in Japan].”

And based on the deal to Softbank, Ripplewood certainly cashed in on the opportunity. The firm will reap a return of more than 4x its invested equity. The company’s valuation is made up of a 143 billion cash payment for Ripplewood’s entire stake in the business, plus 164 billion of assumed debt and 32.5 billion of preferred stock. The transaction is scheduled to close in November. Ripplewood will have the choice to take as much as a quarter of the purchase price in Softbank stock options.

The sale of Japan Telecom was predated by the successful turnaround of Shinsei Bank. Ripplewood acquired the ailing company, then known as Long-Term Credit Bank, in June 2000 and floated the business on the Tokyo Stock Exchange in the first quarter of this year in an IPO that netted the firm roughly 6x times its investment.

For the Japan Telecom deal, Hendren credited the firm’s familiarity with the Japanese markets for helping the firm get the deal done in the first place. He told Buyouts in February, “We could negotiate effectively because of all the knowledge we had about the Japanese Markets…We were on it early and pushed hard on it early, and kept pushing until they opened the door for us.”

According to earlier interviews, Ripplewood had anticipated holding onto the company for three to five years, at which time the firm thought an IPO would represent the most likely exit. That sentiment was also echoed by Japan Telecom CEO Hideki Kurashige earlier this year.

However, near the end of May, Softbank was rumored to be eyeing Japan Telecom as a way to bolster its place in the Japanese broadband market and by the end of the month, the company released news of the deal.

Philip Kemp, a managing director at Ripplewood, noted, “We had been looking for a number of different strategic opportunities for the company and Softbank was a logical group to talk to. As it turned out, Softbank felt Japan Telecom was a core business for them, and decided to buy the company from us, but the initial plan was to find a way to work together.”

The merger will create Japan’s largest ISP and integrated comprehensive broadband services operator, based on revenue of around 1 trillion ($9 billion) for the combined company. To help finance the deal, Softbank will issue approximately 8 million shares of stock options to Ripplewood, which will imply a potential 2% dilution.

The transaction has largely been applauded by analysts covering Softbank’s stock. Morgan Stanley, in a research note to clients, called the deal “A positive step to build scale and stability in its core Japanese IP broadband services business, while reducing existing business risk.”

Ripplewood, ever active overseas, also announced the acquisition of Yamanouchi Pharmaceutical’s Shaklee nutrition, personal care and household products business in a $310 million deal that closed in the last week of May. Ripplewood completed the deal with Activated Holdings LLC, and together the parties will control 81% of Shaklee’s equity, while the balance of the equity will continue to be publicly traded on the JASDAQ.


Buyer: Softbank Corp.

Target: Japan Telecom

Seller: Ripplewood Holdings

Purchase Price: $3B