KKR to buy Nissan-backed supplier Calsonic for up to $4.5 billion

Industry: Automobile, Financial services 2016-11-23

U.S. buyout firm KKR & Co (KKR.N) is buying Nissan Motor-backed auto parts maker Calsonic Kansei Corp (7248.T) for up to 498.3 billion yen ($4.5 billion) in its biggest deal in Japan, seizing on a rare chance there to do a multi-billion dollar purchase.

KKR announced on Tuesday it will pay 1,860 yen per Calsonic share, or a 28.3 percent premium over the stock’s last closing price, for the 41 percent stake held by Nissan (7201.T) and for the rest of the shares from the market through a tender offer.

It beat out rival private equity firms Bain Capital and MBK Partners, which, according to Thomson Reuters LPC, had bid to buy Nissan’s stake. Japan’s second-biggest automaker opened the auction to sell the stake in June.

Calsonic provided private equity firms a rare opportunity to conduct a multi-billion dollar deal in a country where large companies are still reluctant to sell their units through drastic restructuring.

Japan’s private equity industry has been held back by decades of pitiful economic growth and a hostile corporate culture. But, encouraged by governance reforms and demographic shifts, the industry could see a flurry of activity.

The KKR deal comes as Nissan is seeking to invest in areas such as development of new technologies, including in next generation electric cars and automated driving functions. Nissan also bought a controlling stake in embattled Mitsubishi Motors Corp (7211.T) earlier this year.

Calsonic Kansei, which specializes in traditional auto parts, including interiors, electronics, air conditioning units and compressors, relies for about 80 percent of its global sales on Nissan.

KKR said it would help Calsonic expand internationally amid a shrinking home market for the Japanese company.

“As a partner to Calsonic Kansei’s management team, we aim to assist the company in achieving its growth ambitions and make available our international network and industry expertise to continue Calsonic Kansei’s success globally,” Hiro Hirano, head of KKR Japan, said in a statement.

The company expects the tender offer to be launched in February 2017.

EXCESSIVE RELIANCE

Some private equity firms that did not bid to buy Calsonic had concerns about its excessive reliance on Nissan for revenue, and limited growth potential for the auto parts it makes, according to sources. But as more Japanese automakers dismantle their supplier groups, Calsonic has been trying to grow its client baseaway from Nissan. It now counts Renault SA (RENA.PA) – which owns 44 percent of Nissan – Isuzu Motors and other automakers as clients.

In Japan, KKR has done some sizeable deals. These include the 2013 purchase of Panasonic Healthcare from Panasonic Corp (6752.T) in a deal worth $1.67 billion and the acquisition of Pioneer DJ from Pioneer Corp (6773.T) in 2014 for $550 million.

And KKR agreed to sell Intelligence Holdings for 68 billion yen in 2013, almost double what it initially paid for the temporary staffing agency three years ago.

The U.S. buyout firm had also been interested in buying Takata Corp (7312.T), the Japanese parts maker at the center of the world’s biggest auto recall, but the buyout firm was no longer in the bidding, sources told Reuters earlier this month.

Calsonic shares were untraded earlier on Tuesday after the company said it would discuss Nissan’s stake sale at its board meeting. The shares closed at 1,450 yen, up 9.7 percent.

Nissan shares closed down 1.4 percent.

KKR was advised by Morgan Stanley Mitsubishi UFJ Securities Co on the Calsonic deal, while Bank of America Merrill Lynch advised Nissan.