| NEW YORK/TOKYO
NEW YORK/TOKYO KKR and Japanese trading house Itochu Corp have joined forces in a roughly $7 billion bid for U.S. oil and gas group Samson Investment Co, in a rare link-up between a major private equity firm and a Japanese company.
KKR & Co (KKR.N) has been in exclusive talks to buy privately held Samson for weeks, two people familiar with the matter said. The involvement of Itochu (8001.T) is a new twist, underscoring the company's ambition to expand and the surge this year in Japan's outbound M&A push.
A deal is near completion, with an announcement expected as early as Tuesday, the two sources said.
With an enterprise value of more than $7 billion, the deal would be the second-largest global private equity transaction of the year, ranking behind Blackstone Group's (BX.N) $9.4 billion agreement to buy nearly 600 shopping malls from Australia's Centro Properties CNP.AX.
Itochu, which has its roots in linen trading but now deals in everything from energy to insurance, has a 25 percent stake in the consortium, while KKR holds 60 percent, the sources said.
Other private equity investors, led by NGP Energy Capital Management and Crestview Partners, will have a 15 percent stake, these sources added.
Samson, based in Tulsa, Oklahoma, operates more than 4,000 oil wells and has interests in more than 11,000 wells, according to the company's website. Tulsa is the hometown of Henry Kravis, the co-founder of Kohlberg Kravis Roberts & Co (KKR) and the co-CEO.
Samson is active in regions like the Granite Wash, Bakken, Haynesville, Deep Bossier, Woodford and Marcellus, which are estimated to hold vast quantities of oil and gas locked in shale or other underground formations. These spots are also more expensive to tap than traditional oil and gas fields.
The KKR-Samson deal will exclude Samson's Gulf of Mexico assets, the sources said.
KKR and Itochu declined to comment while Samson, NGP and Crestview did not immediately respond to requests for comment.
Samson launched the auction several months ago, with investment bank Jefferies Group Inc JEF.N advising on the process, according to sources familiar with the matter.
KKR has had recent success with energy investments. Marathon Oil Corp (MRO.N) in June struck a deal to buy oil and gas properties in Texas' Eagle Ford shale field for $3.5 billion from KKR and Hilcorp. With the sale, KKR nearly tripled the investment it made just a year ago.
Samson, which has more than 1,200 employees, was founded by Charles Schusterman in 1971. His daughter, Stacy Schusterman, is chief executive of the company.
Itochu has lagged other Japanese trading houses in oil and gas investments. The company's oil and gas output from its equity holdings is expected to fall 13 percent to 34,000 barrels a day this fiscal year, but it plans to raise output to 70,000 by 2015. That is still far less than Mitsui & Co's (8031.T) 220,000 barrels a day output plan.
"Japan's trading houses are looking to boost investment in oil and gas assets as a solid increase in demand is expected in emerging economies even though growth of the global economy will likely slow down," said Jiro Iokibe, senior analyst at Daiwa Securities Capital Markets Co.
Japan has seen a surge in outbound M&A activity in the past few years, fueled in part by a strong yen and large cash positions.
Japanese companies struck $50 billion worth of deals as of early October, up 72 percent from the year before and on pace to break a full-year record, according to Thomson Reuters data.
Private equity firms with an Asia presence have long said they believe teaming with an Asian corporate for an overseas deal is an ideal way to operate, as it gives the buyout firm a cash partner and a strategic, global partner that not only knows the business well, but is eager to expand abroad.
"Japanese companies are interested in overseas expansion and they could use the expertise of private equity firms," said Tsuyoshi Imai, a Tokyo-based lawyer at Ropes and Gray, speaking generally and not about the Samson deal itself.
KRAVIS TALKS JAPAN
Kravis, among the men who pioneered the private equity industry with his cousin and co-CEO, George Roberts, spoke in Hong Kong this month and mentioned at an event how he has seen the business culture at Japanese institutions change over the years, becoming more open and wanting to do business faster.
Kravis, without identifying the target company or its Japanese partner, said his firm was working on a deal with a Japanese company and that KKR had given the company a strict deadline on taking action.
"Very uncharacteristic of Japanese historically, within two days they had 20 people from Japan and from London and New York down south where this company is located," Kravis said, speaking at the AVCJ gala dinner on November 9. "We're talking about a partnership, and they were all there working around the clock."
(Additional reporting by Junko Fujita and Yuko Inoue in TOKYO; Stephen Aldred in HONG KONG; Editing by Gunna Dickson, Phil Berlowitz, Michael Flaherty, Dean Yates and Matt Driskill)