Lim has argued that the Bain-led management buyout of the medical services group Nichii Gakkan was opportunistic © Reuters

Bain Capital’s $1bn swoop for a dominant position in Japan’s nursing home, childcare and dog-grooming market has been challenged by a large investor claiming the US private equity group’s bid is “substantially” too low and that the deal is marred by conflicts of interest.

Hedge fund Lim Advisors, which was directly involved in the creation of Japan’s 2015 Corporate Governance Code, argues that the Bain-led management buyout of medical services group Nichii Gakkan was opportunistic and that the target company’s board did not do enough to protect minority shareholders’ interests. 

Bain’s bid, which would result in Nichii Gakkan being delisted from Tokyo’s stock exchange, involves the purchase of a 44 per cent stake held by the surviving relatives and asset management group of the company’s founder, who died last year.

Bain has offered the remaining shareholders — the largest of which is the secretive fund Effissimo — ¥1,500 ($14) per share, or a 39 per cent premium over their average price for the month that preceded the offer. Lim has argued that even at a conservative valuation the offer should have been closer to ¥2,400 per share.

Bain’s formal proposal to Nichii Gakkan was made in mid-March as Japan closed schools and prepared for a state of national emergency due to coronavirus. Lim said it was timed to take advantage of the turmoil that rocked markets, hitting companies’ valuations regardless of their long-term prospects.

People close to the situation said that Lim’s concerns are widely shared among minority shareholders. They believe that the deal breaches the spirit of new M&A guidelines introduced in Japan last year, specifically crafted to protect minority shareholders from abusive MBOs.

Lim accuses Nichii Gakkan’s board of failing to seek alternative bidders to Bain. While Bain extended the tender offer by 11 days over the 20-day minimum to provide a chance for counterbidders to emerge, Lim argues that “unprecedented” social distancing measures made it effectively impossible for any potential counterbidder to emerge.

In a nine-page letter to the board of Nichii Gakkan, Lim attacked the pricing calculations behind the tender offer made to shareholders in May.

“Sadly, as a shareholder in the company we are concerned about the weak governance process surrounding the board’s approval and recommendation of the tender offer,” said the letter, which was sent on June 3.

The letter also highlighted the fact that for the past five years a Bain executive has sat on Nichii Gakkan’s board. “While conflicts of interest are inherent in many MBOs, it is particularly unusual that the financial sponsor should already have a board seat,” said Lim’s letter. It added that while the Bain executive and other board members who were part of the proposed MBO had recused themselves from negotiations, four long-serving Nichii Gakkan executives who may have loyalty to the buyer group remained active in the decision making.

Travis Lundy, an analyst at Quiddity Advisors, suggested Bain’s offer price was too low when the deal was first announced. “It is incumbent on the independent directors to . . . make sure that a proper sale process takes place so that the interests of minority shareholders are defended,” he wrote on research platform Smartkarma. 

Bain declined to comment. Nichii Gakkan was not immediately available for comment.

Lim is one Hong Kong’s oldest hedge funds and has more than $1bn in assets under management. Despite its low profile, it has a 20-year investment history in Japan and was part of the team that compiled the Ito Review in 2014, which marked the start of prime minister Shinzo Abe’s corporate governance movement.


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