Japanese Internet service provider Softbank Corp. said on Thursday it would buy Japan Telecom Co. for 340 billion yen ($3 billion) from U.S. buyout firm Ripplewood Holdings LLC and others, gaining a foothold in Japan's lucrative corporate telecoms business.
The deal makes Softbank Japan's largest Internet service provider and gives it full control of the country's third-largest fixed-line telecoms operator.
"This gives (Softbank) a much better mixture of customers .... It gives them more revenue streams, and it gives them a platform for potentially offering new services down the road," said Kirk Boodry, telecoms analyst with Dresdner Kleinwort Wasserstein.
The sale of Japan Telecom marks New York-based Ripplewood's second successful exit from a buyout deal in Japan this year.
Ripplewood CEO Tim Collins said he was unsure about Ripplewood's exact return on its investment, but said "It's a good investment. Our investors will be very happy."
He said he had "mixed emotions" on selling the company only months after agreeing to acquire it for $2.3 billion in August last year.
The latest deal involves Softbank taking on 164 billion yen in Japan Telecom debt and buying existing common stock in the telecoms operator worth 143 billion yen as well as preferred shares worth 32.5 billion yen.
The shares would be sold by Ripplewood and five other shareholders, including Goldman Sachs Group Inc, private U.S. equity fund Newbridge Capital Group, Hong Kong investment firm Telecom Venture Group (TVG) and PPM, the private equity arm of British insurer Prudential Plc.
The deal will be completed on November 16.
As part of the deal, Softbank will issue 1.66 billion yen's worth of stock options to Japan Telecom, giving it the right to buy eight million new Softbank shares at 4,700 yen per share.
The latest buyout would make Softbank a telecoms operator with revenues of one trillion yen and 10 million subscribers, the company said.
Analysts said the acquisition of Japan Telecom by Softbank, known as a low-cost Internet service provider, could damage larger rivals Nippon Telegraph and Telephone Corp and KDDI Corp by forcing prices lower.
Softbank is Japan's largest high-speed ADSL (asymmetric digital subscriber line) provider, credited with triggering the mass adoption of ADSL through cut-rate pricing, innovative services and an aggressive sales campaign.
NTT President Norio Wada told Reuters on Thursday that the level of threat Softbank presents to NTT will depend on how Softbank chooses to run the fixed-line operation.
"It's hard to see what it plans to do with it," he said. "Fixed-line voice traffic has been falling, and for the corporate solutions business, offering lines is not enough."
‘Huge home run’
Japan Telecom has been struggling to stay competitive in an industry in the throes of a price war, particularly in corporate services, but analysts said Ripplewood was not selling its stake in Japan Telecom due to those concerns.
"If there's a good buyer and the buyer has a good price, they wouldn't hesitate to sell," said Motoya Kitamura, a buyout analyst at Mitsubishi Research Institute.
Ripplewood acquired Japan Telecom in the biggest leveraged buyout Japan had seen, enabling Ripplewood to keep its equity investment to a minimum.
Ripplewood borrowed nearly 80 percent of the funds from a group of banks led by J.P. Morgan and Citigroup.
One source close to the matter called the deal with Softbank "a huge home run" for Ripplewood.
Ripplewood has already successfully exited a buyout deal in Japan, when in February it floated a stake in Shinsei Bank, netting hefty gains for shareholders including Deutsche Bank and GE Electric Co's GE Capital.
The deal between Softbank and Ripplewood comes amid a burst of activity in Japan's telecoms sector by private equity firms.
Kyocera Corp, which makes mobile phones, said on Thursday it and U.S.-based buyout firm Carlyle Group were in talks to buy Japanese mobile operator DDI Pocket from KDDI Corp.