Under terms of the deal, Softbank will take on JPY 164bn ($1.48bn) of debt, and buy existing common stock in the telecoms operator worth JPY 143bn ($1.28bn) as well as preferred shares worth JPY 32.5bn ($293m).
Goldman Sachs, which advised on the deal, is to join three other investors Newbridge Capital Group, Telecom Venture Group and PPM to take the remaining $260m worth of equity in Japan Telecom.
Ripplewood acquired Japan Telecom last August by paying JPY 261.3bn ($2.35bn) to mobile giant Vodafone Group Plc. It is thought that Ripplewood will use the proceeds of the deal to pay off the JPY 209bn ($1.88bn) it borrowed to buy Japan Telecom.
It will also take a small stake in Softbank, and the deal should be completed by November 16.
Strategically, the acquisition gives Softbank, which is Japan’s largest ISP, full control of the country’s third-largest fixed-line telecoms operator. But there are questions being asked about the wisdom of buying into Japan’s fixed-line market, where it competes against larger rivals NTT DoCoMo Inc and KDDI Corp.
The Japanese fixed-line market is under tremendous pressure, and is struggling with price cuts and intense competition. There is a large user migration to mobile phones, and the growing use of cut-rate Internet Protocol phones are also causing headaches for fixed-line providers.
Softbank is Japan’s largest high-speed asymmetric digital subscriber line provider, credited with triggering the mass adoption of ADSL through cut-rate pricing, innovative services and an aggressive sales campaign.
Despite this, earlier this month it reported its third consecutive year of losses, bringing the three-year total to $2.65bn. The company has raised about $5.5bn in the last year through sales, financial reconstruction and a share issue.
The acquisition will add approximately 1.67 million internet subscribers, as well as about 150,000 business users. When added to Softbank’s 4 million-plus broadband subscribers under the Yahoo! BB brand name, it will give the company a commanding lead in the Japanese battle for broadband market share.
The Japanese market had 13.6 million broadband users as of the end of last year, according to government statistics. All of the broadband providers are still hemorrhaging cash as they battle for supremacy in the potentially lucrative market. Earlier this month, AOL exited the Japanese market.
In Japan, ADSL broadband is provided at speeds starting at 2Mbps and up to 100Mbps on fiber.
Ripplewood has already successfully exited a buyout deal in Japan, when in February it floated a stake in Shinsei Bank, netting hefty gains for shareholders.
