Softbank, the internet services group, has beaten competition from private equity to acquire Vodafone’s Japanese subsidiary for Y1,750bn ($15.1bn) in Japan’s biggest leveraged buy-out.
The UK-based mobile phone operator accepted SoftBank’s offer in spite of “a serious expression of interest” from Cerberus, a US hedge fund, and Providence Equity Partners, a private equity group, which had lined up financing from four banks for a higher offer.
Arun Sarin, Vodafone’s chief executive, said he had chosen Softbank because “the probability and certainty of this offer was greater” than the Cerberus proposal, which was contingent on due diligence. Analysts said Cerberus was unlikely to be able to challenge the agreed deal.
The deal allows Vodafone to return £6bn ($10.5bn) to shareholders, relieving pressure on Mr Sarin, who has faced boardroom dissent and shareholder calls for more disposals. “I can confidently say my position is secure,” he said on Friday. “I have no intention” of going.
Gently, gently approach
Masayoshi Son, Japan’s most famous high-tech entrepreneur, has proved to be a savvy investor who knows the importance of moving fast.
Mr Sarin set out a new strategy for Vodafone, emphasising “strong local and regional scale” rather than a wholly owned global network. The UK company will provide substantial vendor finance to SoftBank, taking Y300bn-worth of preference shares and assuming Y100bn in subordinated debt to seal the deal.
SoftBank will buy Vodafone’s entire 97.7 per cent stake in the Japanese unit, putting up Y200bn in equity and taking on Y1,100bn-Y1,200bn in bank loans to finance the deal. Yahoo Japan, in which SoftBank owns a 42 per cent stake, will invest a further Y120bn. Deutsche Bank, Mizuho and others are expected to provide bridging finance.
Scope for a new strategy
Arun Sarin’s determination to secure a sale was confirmed by the fact that Vodafone has essentially put more money into Softbank’s bidding vehicle, in the form of preference shares and loans, than Softbank has in equity.
Vodafone emphasised it would retain a presence in Japan, with a seat on the board of the new company, but the deal in effect ends a tumultuous period for the UK group in a fiercely competitive market, where it lost ground to the market leader, NTT DoCoMo, and second-ranked KDDI. The Vodafone brand will disappear in Japan.
Bill Morrow, chief executive of Vodafone Japan, said the decision to sell was taken when Masayoshi Son, chief executive of SoftBank, “made an offer that required us to look closely at it”.
The acquisition will give SoftBank a ready-made network and subscriber base, allowing it to accelerate its efforts to become a leading mobile phone operator.
The company, which recently won one of three new mobile phone licences, will be better placed to procure handsets with Vodafone Japan’s 15m-strong subscriber base. However, it faces an uphill struggle to rebuild the mobile operations, which suffered from under-investment.
Mr Son pledged to invest aggressively in the third-generation W-CDMA network, in content and in extending the range of handsets available.
