On the ongoing realignment of Japan’s corporate landscape, Paloma Rheem Holdings, a relatively obscure maker of oven ranges and water heaters, has emerged as the latest contender to acquire Fujitsu General Ltd. The deal, valued at up to ¥257 billion ($1.6 billion), underscores a strategic shift as companies streamline operations to concentrate on core competencies.
Paloma Rheem Holdings has proposed to acquire Fujitsu General Ltd. by offering ¥2,808 per share, marking a 24% premium over the stock’s closing price on January 6. This generous offer, amounting to a potential ¥164.7 billion, is aimed at Fujitsu General’s shareholders. Simultaneously, Fujitsu Ltd., the parent company, announced plans to sell its own stake in the air-conditioning unit for approximately ¥92 billion.
The funding for this acquisition will come from bank borrowings, and Paloma Rheem intends to initiate a tender offer around July, according to Fujitsu’s statement. Following the announcement, Fujitsu General’s shares surged by about 22%, closing just shy of the offer price. Parent company Fujitsu also saw a gain of up to 3.7% in Tokyo trading.
Fujitsu’s decision to divest from its air-conditioning subsidiary is part of a broader strategy to shed non-core assets and refocus on its primary business areas: communications and IT systems for enterprises. Once a comprehensive manufacturer producing everything from laptops to household appliances, Fujitsu has been steadily narrowing its scope.
This divestiture follows previous engagements with prominent private equity firms such as Bain Capital and KKR & Co., as well as Swedish manufacturer Nibe Industrier AB. However, negotiations with these entities faltered due to pricing disagreements. The renewed interest from Paloma Rheem Holdings brings new momentum to Fujitsu’s efforts to offload its air-conditioning unit.
Paloma Rheem and Fujitsu have a history of collaboration, particularly in the development of air conditioning systems for the North American market. This existing relationship could facilitate a smoother transition and integration of Fujitsu General’s operations under Paloma Rheem’s umbrella.
For Fujitsu, the divestiture is expected to have minimal impact on its overall financial performance. The IT segment remains the company’s powerhouse, generating a staggering 84% of its adjusted operating profit in fiscal 2024, which ended in March. By offloading its low-synergy air-conditioning unit, Fujitsu can sharpen its focus on its profitable IT business.
The proposed acquisition aligns with a growing trend among Japanese conglomerates to streamline operations and enhance shareholder value. This trend is driven by increasing pressure to improve operational efficiencies and concentrate on sectors with higher growth potential.
The market responded positively to the announcement, with investors likely interpreting the deal as a step towards better resource allocation and improved financial health for Fujitsu. Moreover, the premium offered by Paloma Rheem suggests confidence in Fujitsu General’s long-term prospects, even as it transitions under new ownership.
This acquisition is not an isolated case. Fujitsu has also been negotiating the sale of its chip packaging subsidiary, Shinko Electric Industries Co., to a consortium led by Japan Investment Corp. for about $2 billion. This deal has been in the making for several years, drawing interest from various global private equity firms, including Apollo Global Management Inc., Bain Capital, and KKR.
Additionally, Fujitsu has put its battery manufacturing unit, FDK Corp., on the market. These sales underscore Fujitsu’s ongoing commitment to streamline its operations and focus on high-margin, high-growth sectors.
As Fujitsu transitions away from consumer electronics and other non-core areas, its focus on IT and communications technology is expected to drive future growth. Meanwhile, Paloma Rheem’s acquisition of Fujitsu General could herald a new era for the company, enabling it to leverage Fujitsu General’s expertise and market presence to expand its product offerings and geographical reach.
This strategic move also signals potential further consolidation in the Japanese manufacturing sector, with companies looking to optimize their operations and strengthen their competitive positions in an increasingly globalized market.
