HONG KONG (Reuters Breakingviews) - A tortuous Japanese takeover battle has taken a viral twist. Unizo, an owner of hotels and commercial property, is backing a $1.9 billion bid from buyout shop Lone Star that matches the price offered by peer Blackstone. Fresh Covid-19 volatility could accelerate an endgame, but also calls into question the structure of the frontrunner’s deal.
Even as market values have tanked around the world, Unizo’s has been underpinned by eager suitors. Its shares are trading at around 5,900 yen apiece, just shy of the 6,000 offered by both Lone Star and Blackstone. They were worth less than 2,000 last July when it received a hostile approach from a domestic travel agency. SoftBank-owned Fortress also was later in the mix.
The novel coronavirus may help wrap things up. After mostly waiting quietly in the wings for months, hedge fund firm Elliott Management and Ichigo Asset Management, the company’s two biggest owners with a combined stake of more than 22%, will now tender to Lone Star, Unizo said this week.
Although the preferred buyer’s valuation is the same as Blackstone’s, other components of its offer are notably different. Under terms of the recommended deal, Unizo would be controlled by a unit that is 73% owned by dozens of employees and the rest by Lone Star. Some staff say they’ve been duped, however, and complained to Japan’s securities regulator that it is a management buyout in disguise that would lead to mass divestitures and layoffs, according to the Financial Times. Unizo declined to comment on the allegations.
The deal also would be financed with up to $1.2 billion in loans from Lone Star, payable six months after the initial drawdown date. Heading into a worldwide recession when travel is all but shut down, Unizo already carries debt of about 12 times EBITDA. Plans to sell more properties also look questionable with credit markets roiled and asset prices tumbling.
It isn’t clear if Blackstone’s deal would be cleaner from a financial perspective, but it has at least implied it wants to develop Unizo into a bigger company and offered employees a way to benefit from any upside. Absent a higher bid, though, Unizo shareholders and staff may soon find out just how solid Lone Star’s proposal is.
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