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KKR to take Hitachi Transport private in $5bn deal

Hitachi will sell its 40 per cent stake in logistics company Hitachi Transport System to US private equity group KKR as part of a $5bn deal that is a major step in the sprawling Japanese group’s drive to focus on digital services

The deal, which will take the Tokyo-listed logistics business private, caps years of reform to transform the Japanese conglomerate into an IT and digital infrastructure specialist by merging and selling off listed subsidiaries previously considered sacred cows.

Last year Hitachi bought Silicon Valley software engineering company GlobalLogic for $9.6bn to bolster its presence in digital services.

“Many of our listed subsidiaries are leaving the group based on the scenario that they’ll continue to grow,” Hitachi’s new chief executive Keiji Kojima told reporters in Tokyo.

Kojima said he intended to continue to collaborate with Hitachi Transport to help it provide a logistics operation that could service increasingly integrated global supply chains.

“Industrial machines in factories, robots, warehouses — many things need to be connected smoothly — that’s where we want to keep working together,” he said.

Hitachi’s chief executive Keiji Kojima
Hitachi’s chief executive Keiji Kojima: ‘Many of our listed subsidiaries are leaving the group based on the scenario that they’ll continue to grow’ © Kiyoshi Ota/Bloomberg

The deal will see KKR acquire Hitachi Transport via a tender offer and take it private. The US private equity group will launch the tender offer at ¥8,913 ($68) a share, above the company’s closing price of ¥8,540 on Thursday.

The view of Hitachi Transport shareholders, other than the parent company, was unclear on Thursday.

The deal, which a source familiar with the matter said meant KKR would invest about $5.2bn for 90 per cent of Hitachi Transport, would see Hitachi reinvest in the acquiring fund to own the remaining 10 per cent in the unit after the delisting.

KKR Japan’s chief executive Hiro Hirano said the private equity group wanted to use its global network and expertise to accelerate Hitachi Transport’s growth and help it become a leading provider of outsourced logistics services in Asia.

Hitachi Transport is one of Japan’s largest such third-party logistics companies, with heavy focus on supporting shipping businesses. Its net income for the fiscal year ending in March 2022 is projected at ¥13bn.

Hitachi has been shedding listed subsidiaries, selling Hitachi Metals to US investment fund Bain Capital and others a year ago. In January, it offloaded about half of its stake in Hitachi Construction Machinery to trading house Itochu and a Japanese investment fund.

“In the absence of a big external shock, many firms are loath to sell significant non-core businesses because senior management feels like they are ‘selling our people’, betraying past unwritten promises or because they do not define what is core,” said Nicholas Benes, an expert on corporate governance in Japan.

Benes said it took Hitachi “two huge losses — in 2002, and an even larger one in 2009 — for the board to appoint a CEO who was not then in headquarters, so was free to immediately announce that he would focus the strategy on cash flow and core businesses, and sell non-performing holdings”.

Hitachi had been doing that ever since, added Benes, turning it into a success story and a model for others to follow.

The sale of non-core businesses by big Japanese conglomerates has been a source of rich pickings for both domestic and foreign private equity groups, with KKR viewing Japan as its second most important source of potential deals after the US.

Separately, Hitachi on Thursday reported a 49 per cent jump in full-year operating profit and said it would buy back ¥200bn worth of its own shares.

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