Ripplewood buys Japan Telecom

[gkanai]

Ripplewood Deal Blazes a Trail in Japan

These guys are kicking ass and taking names. I look forward to their next acquisition.

[Taro Toporific]

Ripplewood Deal Blazes a Trail in Japan

These guys are kicking ass and taking names. I look forward to their next acquisition.

It's amazing the balls these Ripplewood guys have...of course at 10cents on a dollar they can just sell off the land holdings and make money.

"]Ripplewood Deal Blazes a Trail in Japan

...Now that Ripplewood has a foothold in telecommunications, some suspect it might buy stakes in smaller companies to help it compete with NTT, which controls about 90 percent of the local phone market in Japan. Mr. Hendren did not rule out acquiring other companies, but said there were no plans afoot.

Two candidates stand out. Crosswave Communications Inc., a venture between Sony, Toyota Motor and Internet Initiative Japan, provides high-speed data communications services. On Wednesday, the company filed for protection from creditors, who are owed 68.4 billon yen ($579 million).

Internet Initiative Japan may also be for sale. The Nihon Keizai newspaper reported today that NTT may buy a 30 percent stake in the company for as much as 20 billion yen ($169 million).

[gkanai]

Totally ballsy. Like how Ripplewood paid $150M for the Seagaia resort when the original investors spent $2.3B to build it (that's around 15%!)

BW Online | December 10, 2001 | Table: Ripplewood's World

[Taro Toporific]

Totally ballsy. Like how Ripplewood paid $150M for the Seagaia resort when the original investors spent $2.3B to build it (that's around 15%!)

Foreign 'vultures' losing sinister image in Japan

TOKYO, Aug 26, 2003 01:26 AM ET (Reuters)- Foreigners gobbling up assets at a fraction of the original price and then tearing them apart.

It is an image that strikes at the heart of national pride, and nowhere more so than in Japan, where conservative politicians and tabloid reporters have had a field day in recent years lamenting "vulture funds" picking over the bones of failed firms.

But while foreign buyout specialists may still not be welcomed with open arms, there are signs that Japan is growing more willing ...Three years ago, U.S. fund Ripplewood Holdings' purchase of the failed Long-Term Credit Bank (LTCB), now Shinsei Bank, prompted a wave of political indignation and soul-searching as Japan....

"There's nothing wrong with foreigners. Look at Ghosn," he said, referring to Nissan Motor Co. chief executive Carlos Ghosn who is credited with guiding the automaker back from the brink of bankruptcy.

HSBC's Nozaki agreed that Ghosn, who Japanese voted as an ideal father in a recent poll, has played a role in softening the image of foreign players.

"Ghosn may have nothing to do with foreign funds, but he has helped to soften the image of the foreigner. The foreigner is now more of a restructuring leader than something sinister."

[Taro Toporific]

Totally ballsy... Ripplewood ....

In less than 9 months, Ripplewood is gonna make back 50% of their investment back sell only a smallish PART of Japan Telecom. Nice!

Softbank Says It's in Talks to Acquire Stake in Japan Telecom
May 25 (Bloomberg)Softbank is discussing the purchase with Ripplewood, a New York-based buyout fund, and pay more than 100 billion yen ($887 million) for a stake in Japan Telecom, the country's third-largest fixed-line phone company, the Nihon Keizai reported, without saying where it obtained the information.
Tokyo-based Softbank is also considering making the purchase through a holding company or a business integration, the paper said. The acquisition would expand Softbank's customer base for its digital subscriber line to businesses, Nikkei said.
Ripplewood in August agreed to buy Japan Telecom from Vodafone Group Plc, the world's biggest mobile-phone operator, for 261 billion yen.

[Mulboyne]

Taro, the link you gave says this

May 25 (Bloomberg) -- Softbank Corp., Japan's second-largest provider of high-speed Internet service, said it's in talks to acquire a majority stake in Japan Telecom Co. from Ripplewood Holdings LLC.

If that is correct (and it could well be wrong) then a 100 billion price tag for a majority stake in a deal which cost 261 billion suggests a small initial writedown for Ripplewood - especially since you ought to pay a premium for control. Also, these prices never talk about debt. When ING bought Barings "for one pound" it actually entailed repaying several hundred million dollars of bank loans.

Bankruptcy laws are different in Japan. It nearly impossible to buy a company once it has gone into administration so most deals are struck beforehand which leaves a buyer with bank obligations and risks of any undisclosed off-balance sheet disasters.

Even Renault's purchase of Nissan required bank agreement on the nature of the debt at subsidiary Nissan Diesel.

Of course, Ripplewood would likely be betting that a tie-up would enhance the value of the remaining stake.

Ripplewood undoubtedly pulled a major coup with Shinsei, both in the buying and the selling. Seagaia, however, is a turkey. When you have pulled a few billion in one deal, I guess you can afford some mistakes.

Ripplewood's philosophy is to introduce expert overseas managers and locals who have "seen the light" to strip a business down to where it can be sold to a trade buyer or listed on the stock exchange.

The problem is getting the managers. In Shinsei's case, it didn't matter so much because of the great purchase price but does anyone think current managers can grow the bank as promised?

Nippon Columbia is a classic case of stripping a business down in a smaller version of the Nissan deal. That looks like a good deal but lower returns all round.

But just how many great managers are there? If Microsoft with all its resources can't find the right guy to run XBox in Japan, can Ripplewood always be relied upon to find the right team?

Seagaia and JT assets were deals Ripplewood did because funds were burning a hole in their pocket and too many of the deals turning up were too small. Hirota pastries? Hub pub chain? Good turnaround situations but tiny.

Ripplewood will hope that retail investors will have a fond memory of Shinsei and take whatever comes next. I admire the way they broke in to Japan but it looks like they peaked early.

[Taro Toporific]

If that is correct (and it could well be wrong) then a 100 billion price tag for a majority stake in a deal which cost 261 billion suggests a small initial writedown for Ripplewood ....Seagaia, however, is a turkey...

When Ripplewood bought J-Telecom from Vodaphone's useless short reign, here at Maybe-the-Largest-in-Japan Inc. had a 3-day drinking parties to celebrate since as we're a major equipment vendor and J-Telecom owed us plenty. Ripplewood did pre-pay down the debts that we had already written off the J-Telecom debt so it was a windfall which we needed to whore-away quickly.

When, we saw this sale to the Bigger-Fool, SoftBank, we all died laughing. Ripplewood had collected all of J-Telecom's revenue stream up-front for a year in advance. On paper, Ripplewood "lost" money which they used a tax write-off and they actually came out WAY AHEAD, hee, hee.

As gkanai wrote before: "Totally ballsy".
All my props to the Blackships of Ripplewood

[Mulboyne]

The English Daily Yomiuri says this:

Ripplewood acquired Japan Telecom from its main stakeholder, Vodafone Group PLC of Britain, for 260 billion yen in November. The U.S. investment fund appointed the former vice president of IBM Japan Ltd. as president of the fixed-line carrier with a brief to restore profitability. But the expected revitalization was not realized, prompting Ripplewood to look for a business partner, according to industry sources.

There is always a lot of disinformation around when a deal has not been concluded - Softbank wants a cheap price and so it is in their interests to talk down JT's current situation. BUT, this does tally with what I've heard. There just aren't that many good managers of fixed line businesses around for Ripplewood to make the impact they wanted.

One of the signs of a good investor is someone who will get out of a mistake quickly. If Ripplewood have tripped up, they are doing exactly what they should do. No point in just hoping things get better, take some cash off the table.

Always ride the winners and sell the losers - whereas our own instincts tend to make us sell our winners early and hang on to the losers hoping to at least break even.

[Taro Toporific]

If Ripplewood have tripped up, they are doing exactly what they should do. No point in just hoping things get better, take some cash off the table. .

Damn I could never have the balls to risk that Japan Telecom buy but....

Softbank acquires Japan Telecom for $3.04bn
Financial Times, UK - 27 May
Softbank said it would buy Japan Telecom from Ripplewood for Y340bn ($3.04bn), a 30 per cent premium to the price the US private equity group paid ...

...The deal came just nine months after Ripplewood completed a landmark Y261.3bn ($2.3bn) leveraged buy-out of JT from Vodafone and marked its second successful exit from its investment in Japan following the $2.2bn initial public offering of Shinsei Bank.

[Mulboyne]

You have to look at the debt number. Softbank is only assuming 130 billion yen. Ripplewood pays down the rest (or has paid it down). Since the company hasn't turned a profit since they bought it, there are no internal funds to set against that sum. In September 2003 mid-terms, this company lost 125 billion yen at the net level. A lot of that was the result of investment writedowns in spite of decent operating income but we know that life did not get better in the months Ripplewood owned it.

Borrowings and debt in the accounts approved on November 18th (Ripplewood purchase concluded Nov 14th)amounted to 870 billion. Neither side is likely to publish the borrowings split in this deal but we'll see soon enough in Softbank's consolidated accounts. Sure a good part of the borrowings will represent normal company financing requirements but they didn't call Ripplewood's bid leveraged for nothing.

This is a good move by Ripplewood but not a moneymaker.

The foreign press is gung ho about Ripplewood because it is one of the few names that let journalists here get bylines outside their normal "Asia/Pacific" prison. Don't expect them to look at the kessan tanshin!

[Taro Toporific]

The foreign press is gung ho about Ripplewood because it is one of the few names that let journalists here get bylines outside their normal "Asia/Pacific" prison. Don't expect them to look at the kessan tanshin!

Hey, I could REALLY understand that desire to, "Get bylines outside their normal Asia/Pacific prison" and reading the kessan-tanshin/financial statements. I remember being ripped a new a-hole for trying to dig deeper kessan-tanshin long, long ago when I was working freelance at nights for Jardine-Fleming (aka Jardine's aka "Nobel House" of the Opium War). The Japanese director of Jardine-Fleming told me my services were no longer needed for, "trying to analyze 'manga' (kessan-tanshin)."

Anyway, this is what the comics at NYTimes.com and Bloomberg are now saying...

Ripplewood Garners Fourfold Return on Japan Telecom (Update1)
Bloomberg - May 28 -- Ripplewood Holdings LLC will reap a fourfold return on its one-year investment in Japan Telecom Co., which it agreed to sell yesterday to billionaire Masayoshi Son's Softbank Corp. for 143.3 billion yen ($1.3 billion).
The New York-based fund, headed by former Lazard Freres & Co. banker Timothy Collins, led a group of investors including Goldman Sachs Group Inc. that paid 32.5 billion yen for Japan Telecom's common shares last November. Softbank will pay 143.3 billion yen for the stock, completing the purchase on Nov. 16.
This was a ``very good investment'' for Ripplewood, Collins, 47, said at a press conference in Tokyo.
...more...

2 Deals Could Reshape Telecom Business in Japan
May 28 / NYTimes.com
....Ripplewood, the sale of Japan Telecom brings a quick and profitable turnaround on one of its biggest investments in Japan. Ripplewood bought a controlling stake in Japan Telecom for $2.33 billion just last year in the largest leveraged buyout in Japan's history. Ripplewood borrowed about 80 percent of the money from other investors led by J. P. Morgan and Citigroup.
Over all, it was "a very good investment for Ripplewood," the company's chief executive, Timothy C. Collins, said, though he declined to elaborate on precisely how much his investors made

[Mulboyne]

I remember being ripped a new a-hole for trying to dig deeper kessan-tanshin long, long ago when I was working freelance at nights for Jardine-Fleming (aka Jardine's aka "Nobel House" of the Opium War). The Japanese director of Jardine-Fleming told me my services were no longer needed for, "trying to analyze 'manga'

That is hilarious. I take my hat off to you

Those two press items are great. Some of the details are right but the press always juggles numbers around interchangeably when you have to keep them in the same categories to make comparisons. This is how Ripplewood's purchase was announced last year in their joint press release:

Details of the transaction

The enterprise value of Japan Telecom is expected to be approximately 262 billion yen in early October 2003. As a result of the transaction, JAPAN TELECOM HOLDINGS will receive 261.3 billion yen as follows:
- 228.8 billion of cash]

Debt financing arranged by

Mandated Lead ArrangersABN AMRO BANK N.V., TOKYO BRANCH; THE BANK OF TOKYO-MITSUBISHI, LTD; CITIBANK, N.A;CREDIT LYONNAIS, TOKYO BRANCH;
ING BANK NV, TOKYO BRANCH; JP MORGAN SECURITIES ASIA PTE. LIMITED; MIZUHO CORPORATE BANK, LTD.; SUMITOMO MITSUI BANKING CORPORATION; THE NORINCHUKIN BANK; UFJ BANK LIMITED;
WESTLB AG;

So it is a little odd to see Bloomberg saying

The New York-based fund, headed by former Lazard Freres & Co. banker Timothy Collins, led a group of investors including Goldman Sachs Group Inc. that paid 32.5 billion yen for Japan Telecom's common shares last November. Softbank will pay 143.3 billion yen for the stock, completing the purchase on Nov. 16.

since the 32.5 billion refers to the redeemable preferred equity and in no way represents the price paid for the common shares. Softbank buys these preferreds and the common and, it seems, assumes 164 yen billion in debt. It is also a bit disingenuous to look purely at the stock transaction and not the debt.

I think I'll sell shares in myself for 10 yen to someone who can then pay off my crippling mortgage and sell me on for 20 yen and "make a 100% return"

I liked this quotation

Overall, it was "a very good investment for Ripplewood," the company's chief executive, Timothy C. Collins, said, though he declined to elaborate on precisely how much his investors made.

It was very good. All learning experiences are good investments. Sadly, the only people entitled to know the returns are investors in the Ripplewood fund. Actually, even they will not necessarily be privvy to transaction-by-transaction returns.

[Taro Toporific]

Here's the Joker wild card in the whole deal, Son-san. What a character he is?! I've met him in the elevator of the old SoftBank building many times at the oddest hours, 3am, 5:30am...He's the ONLY Japanese CEO I've met, and I've met few over the years, who actually liked talking to FG strangers.

Bold, visionary, ambitious, unpredictableFT.com : June 3 2004 5:00 GMTIf Masayoshi Son, president of Softbank, has one outstanding quality, it is his ability to defy the sceptics.
Japan's most famous internet entrepreneur has been written off countless times since he built his broadband business empire from a one- room software distributor in a wooden office building.
But each time Softbank seemed near collapse, Mr Son skilfully rode the next business trend, launching ever more daring deals and confounding his critics.
His latest foray - the Y340bn ($38bn) acquisition of Japan Telecom from Ripplewood, the US private equity firm - is the biggest test yet of whether Mr Son has the ability to transform Softbank from an opportunistic investor into a serious operator.

[Mulboyne]

Didn't spot the article on Son. He is weird but he's a fun act to watch.

Just saw this on Seagaia
Seagaia operator looking at Y2.2 bil net loss

MIYAZAKI — Phoenix Resort KK, the operator of the Seagaia amusement park in Miyazaki Prefecture, probably suffered a net loss of 2.2 billion yen in fiscal 2004 through March 31, sources familiar with the earnings said Monday.

The loss was 1.3 billion yen smaller than the previous business year but the resort operator's cumulative loss swelled to 12 billion yen, the sources said. (Kyodo News)

Now I've no more reason to believe these numbers than the other ones I've seen for Ripplewood deals. I know Seagaia is hurting but I don't know how much.

It is interesting that the foreign press gives all the Ripplewood good news while the Japanese press likes the bad news. Just plain bad reporting on both sides.