The US entertainment giant is to buy 50.1% of T&E Soft Inc, a company that specializes in video games. However, the deal is a first for the Japanese market as it incorporates a special call option for which the strike price has not yet been determined.
What this means is that neither side knows what the final value of the deal is going to be. Disney has signalled its commitment to the company by purchasing Y5.5 billion ($47.38 million) of convertible bonds that amount to 35% of the company. However, it has also agreed to buy a further 15.1% of options. It is these options that are the innovative part of the deal, as their strike price will be determined down the road.
Sound strange? Well, the logic of this deal is that it gives both parties comfort. Disney wants to spend some time in the company to see exactly what the software company is capable of. And the Japanese target – with the fear of foreign ownership a major issue in Japan – wants the flexibility to negotiate the price of control at a later date, perhaps when markets are more flexible.
The deal thus represents a statement of commitment to one another, but leaves both sides free to negotiate a fair price when their partnership deepens. Since ‘partnership’ is so central to Japanese culture, this represents a very Japanese style of M&A.
ING Barings – which recently hired Jardine Flemings Japanese M&A team – advised on the transaction.
