Friday, September 27, 2013
DJ: KKR Lands $1.7bn Deal To Buy Panasonic's Health-Care Unit
TOKYO-- U.S. private-equity giant KKR & Co. (KKR) landed its biggest deal in the Japanese market with an agreement to buy Panasonic Corp.'s (6752) health-care unit for Y165 billion ($1.7 billion).
Industry watchers say the partnership between the consumer electronics brand and the U.S. buyout fund could help to breathe life into Japan's long-moribund market for private equity.
The KKR investment also comes as private-equity heads are recently seeing fresh opportunities on the back of a steady rise in share prices and a growing willingness among some Japanese companies to shed nonessential assets.
"This could be a great model for rest of corporate Japan. The big Japanese companies in almost any industry have all sorts of non-core assets that they should have sold long ago," said Kenneth Lebrun, a partner and M&A expert at Shearman & Sterling LLP in Tokyo.
"There is a lot of skepticism because it's taken so long for change to come. But on the other hand, the opportunities are still huge. There are hundreds and hundreds of potential assets that private equity would love to buy," Mr. Lebrun said.
Panasonic is recovering from one of the biggest losses in Japanese corporate history. After a failed bet on flat-panel televisions and the commoditized display technology that underpins them, Panasonic has lost more than Y750 billion ($7.5 billion) in each of the last two fiscal years.
Last year, the company tapped Kazuhiro Tsuga to reshape Panasonic as an industrial company, which is less vulnerable to the volatility of consumer electronics and more focused on what it sees as more stable and promising businesses such as equipping environmentally-friendly buildings and supplying car makers with green energy components.
As another part of his strategy, Panasonic said it aims to eliminate losses at struggling divisions. It has scaled back its television operations, spun off its chip business into a partnership with Fujitsu Ltd.'s semiconductor operations, and pulled out of producing smartphones for consumers. The healthcare business, while profitable, was targeted by Mr. Tsuga as a unit looking to accept capital from a third party, which had the finances to fund its expansion and a deep knowledge of the medical industry.
Under the agreement, KKR will own an 80% stake in Panasonic Healthcare Co., while Panasonic will own the rest. The transaction, which will generate roughly Y75 billion in non-operating profit for Panasonic, is expected to close by the end of March 2014.
"We believe that partnering with KKR will also allow us to learn from KKR's global operational and business management expertise as we pursue the next stage in growth for Panasonic," Mr. Tsuga said in a statement.
The bid for the healthcare business had drawn interest from multiple companies such as Toshiba Corp. (6502) and a consortium including Bain Capital LLC, another U.S. private-equity firm, according to people with knowledge of the matter said. KKR won preferential negotiating rights after presenting the highest price among the bidders, one of the people said.
The healthcare unit, headlined by Panasonic's blood glucose monitoring sensors, generated sales of Y134.3 billion and an operating profit of Y8.7 billion for the fiscal year ended in March. Its margins are considerably higher than most of Panasonic's other divisions, but its sales and profits were mostly flat.
Having opened its Tokyo branch in 2006, the Panasonic deal represents KKR's biggest and only its second major investment in the Japanese market since it acquired temporary staffing agency Intelligence for $356 million in 2010.
The New York fund, run by Henry Kravis and George Roberts, recently raised $6 billion to be invested through out Asia. In April, KKR appointed Hirofumi Hirano, a turnaround expert, as the chief executive of its Japan office and has strengthened its Tokyo team by hiring two directors from Goldman Sachs and McKinsey & Co.
"Japan is a very important and attractive market for KKR, and our experienced team on the ground in Japan looks forward to leveraging KKR's global expertise and experience to make this a highly successful partnership," Mr. Kravis said in the joint statement.
Despite its robust funding ability to buy the Panasonic unit, KKR had earlier discussed working with the government-backed Innovation Network Corp. of Japan to help ease concerns over a private-equity investment, according to one of the people familiar with the deal. While the option of co-investment is not entirely ruled out, the talks between the two have not advanced further, the person added.
Panasonic was advised by Bank of America Merrill Lynch, and KKR worked with Goldman Sachs Group Inc.