Carlyle buys stake in NH Techno Glass for $564 million

Carlyle purchases Nippon's entire stake and part of Hoya's holding in a deal that gives it 52.6% ownership of the Japanese LCD manufacturer.
Private equity firm Carlyle has emerged the winner of an auction for controlling interest in NH Techno Glass for Ñ58.1 billion ($564 million).

NH Techno Glass is currently owned 50% by Nippon Sheet Glass (NSG) and 50% by Hoya Corp. A special purpose vehicle (SPV) formed by Carlyle will buy the entire stake owned by NSG for Ñ40.6 billion. At the first stage, Hoya will sell 21.5% of NH Techno Glass to the SPV for Ñ17.5 billion. Subsequently, after a further reorganization of shareholdings and a merger of the SPV into the existing NH Techno Glass, Hoya will own 47.4% of the final, re-constituted equity of NH Techno Glass and continue to partner with Carlyle in the business.

The structure of the deal meets multiple objectives of giving Carlyle a majority ownership in the company, leaving Hoya with a substantial minority interest and a partial realisation of value, and providing NSG with a complete cash out of its holdings. The price Hoya has realised for its stake is likely to incorporate a control premium Carlyle has agreed to pay to achieve a majority ownership. Carlyle withheld financial details of the deal including consideration paid but both sellers released information about the amount they realised on the share sale.

Yokohama-based NH Techno Glass started business in 1991 as an equal joint venture between NSG and Hoya. In 2007 NSG appointed UBS to recommend alternatives for its stake in the business. The move followed NSGÆs 2006 takeover of British sheet glass maker Pilkington Group, on which it was advised by UBS, Lazard and Daiwa SMBC. NSG paid ú1.8 billion ($3.5 billion) for the 80% interest in Pilkington which it did not own and said at the time it intended to focus its resources on its core automotive glass business.

NH Techno Glass manufactures LCD (liquid crystal displays) which it sells to customers in Japan, China, Taiwan and South Korea. It is planning large capital investments to add manufacturing facilities to meet rising demand for its products. It also said it would work with Carlyle and Hoya to enhance its corporate value for a potential IPO. Others said to be interested in buying the stake in NH Techno Glass were private equity firms Bain and TPG.

NH Techno GlassÆs competitor Corning estimates that since 2000 glass substrate size has approximately doubled every 1.5 years as manufacturers of computers, televisions and other products offer larger size screens. Manufacturers have to keep making investments to keep up with these changes.

NH Techno GlassÆs president Jun Makino said he expected a sharp increase in demand for LCD glass substrates in applications across flat-screen television sets, monitors for personal computers and notebook computers, and mobile telephone display screens.

ôBesides funding facilities expansion, Carlyle will help actively pursue strategic partnerships and significant improvements in corporate value under a new ownership framework,ö says Masao Hirano, managing director and co-head of Carlyle Japan buyout fund in a written statement.

The NH Techno Glass deal follows the acquisition by Carlyle of four Tokyo-based resident-paid nursing homes in Tokyo for Ñ14.6 billion in January 2008. That deal was done by CarlyleÆs real estate arm.

In the last 12 months some big private equity deals have been announced in Japan. After setting up shop in Japan in 2005, EuropeÆs largest buyout fund, Permira, announced its first deal in the country in October 2007, spending $2.2 billion to acquire Japanese agro-chemicals firm, Arysta LifeSciences from private equity owner, Olympus Capital. The Arysta deal was followed in November 2007 by a consortium led by JC Flowers shelling out $1.8 billion for a 33% ownership interest in Shinsei Bank. And in another instance of one private equity firm selling down to another, in February 2008, LoneStar sold its controlling interest in Tokyo Star Bank (TSB) to Advantage Partners for $2.4 billion.

One of the factors working in favour of private equity investors in Japan is a banking sector flush with funds. For financial sponsors this provides a source of funding for deals, enabling them to both bid aggressively and extract returns by highly leveraging the target company. For the last decade Japan has been viewed as a market with the potential for traditional multi-billion dollar private equity buyouts favoured by financial sponsors, but until now it has mostly failed to deliver on this promise. That could finally be set to change.
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