The management buyout of a small green energy and technology group has put one of the world’s biggest private equity firms, Carlyle, on a collision course with the family of Japan’s most notorious activist investor.

The impending clash comes as some analysts predict that, after decades of docile investors and a near-total absence of hostile takeovers, Japan is on the brink of change, with businesses forced to respond to activist shareholders and fiercer competition for assets.

The expected tussle over Japan Asia Group (JAG) will force Carlyle to deal with funds run by family members of Yoshiaki Murakami — an investor now based in Singapore whom detractors often accuse of using “greenmail” tactics on small Japanese companies, buying enough shares to threaten a takeover and forcing the owners to fend off the attack by buying them back at a premium.

The battle centres on Carlyle’s backing of a ¥37bn ($356m) buyout of JAG and its subsidiaries. It will offer ¥600 per share, a 75 per cent premium to JAG’s closing price a day before the Nov 5 announcement.

Despite the size of the premium, analysts said that the offer was around 35 per cent below JAG’s tangible book value. On Friday, the stock closed at ¥759 — 26 per cent higher than the Carlyle bid.

The Carlyle-backed MBO is the latest in a wave of dealmaking in Japan by the world’s largest private equity groups as traditional barriers begin to tumble and company managements begin to question the benefit of remaining listed. 

Some firms, such as Bain and KKR, have focused on large asset sales by company founders and businesses spun out of conglomerates looking to streamline their operations. Carlyle and others have focused their attention on the many thousands of smaller companies where succession is unclear or with other reasons for wanting to sell to private equity.

As well as a higher volume of deals, the environment has changed too: a taboo against unsolicited bids which suppressed price competition for assets, has begun to evaporate. Earlier this month, the management of Shimachu Homes was forced to switch its recommendation of an offer to shareholders after a higher, unsolicited bid arrived.

A filing on Thursday showed that Tokyo-based City Index Eleventh and Mr Murakami’s son-in-law have acquired a combined stake of 6.1 per cent in Japan Asia Group. Traders in Tokyo said that recent market activity suggested that funds linked to Mr Murakami may now collectively own at least 20 per cent of JAG, but will not need to disclose that for several more days.

City Index has sent letters to JAG in the past two weeks, arguing that Carlye’s bid was too low, according to Hironaho Fukushima, who heads the fund. 

“In a management buyout like this where the company is going to be delisted, shareholders like us who will be squeezed out can only turn to the price,” Mr Fukushima told the Financial Times. 

“We will consider various options,” he added. Previously, Mr Murakami and a group of at least five funds run by his family members have threatened hostile takeover bids and extraordinary meetings to put pressure on companies they have invested in. 

JAG declined to comment when asked whether it would consider raising the offer. Carlyle also declined to comment on the deal.

Source: Financial Times

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