KKR outmanoeuvres Bain in $4 bln Japan showdown

Creative solutions. KKR has found a way to outsmart Bain Capital in Japan. The two buyout giants are tussling over IT specialist Fuji Soft. It's a rare and messy showdown in a hot market, but KKR has deployed a clever tactic to put itself ahead without having to raise its offer price. Future buyers should take note.
KKR launched its tender offer in early September, valuing the target at $3.9 billion. At the time, it appeared to be a done deal: Fuji Soft's board and top shareholders - Singapore-based 3D Investment Partners and Farallon Capital - all supported the deal. Yet days later, Bain dangled the prospect of making a binding offer roughly 5% higher than the existing one, sending the target's shares up.

Investors hoping for a bidding war will now be disappointed. On Thursday, KKR said it has switched to a two-stage tender offer without a minimum acceptance limit. The idea is to allow 3D and Farallon to tender their combined 33% stake first, giving KKR a minority stake sizable enough to deter a takeover from Bain. Remaining holdouts will then get a chance to tender their shares at the second stage - a probable scenario once it becomes clear Bain will retreat. Fuji Soft's shares fell over 3% on Friday morning and are trading just above KKR's offer price.

It's an elegant move to bookend what has turned into a messy affair. Activist 3D had initiated a sales process a year earlier; Bain recently claimed it had shown interest in the company during that period and that it would have made a binding, higher offer than KKR if it had known Fuji Soft was willing to sell itself. Fuji Soft said it had only received a non-binding offer from Bain. KKR also hit back, saying its rival's move was "unprecedented in Japan M&A practice" and had made it difficult for general shareholders to make "well-informed decisions".

The rare fight underscores the increasingly competitive nature of dealmaking in the country. Japan emerged as the largest private equity market in Asia Pacific last year and one where funds secured some of the highest returns globally. As messy and public clashes become more frequent, buyers will need to take a leaf out of KKR's book and find creative manoeuvres.