JC Flowers bids $1.8bn for Shinsei stake

The private equity firm that made its name turning around the Japanese bank has returned to bail out a beleaguered Shinsei with the largest-ever private equity deal in the Japanese banking sector.

Shinsei Bank’s board of directors has approved a bid from JC Flowers to buy up to a 32.6 percent stake for $1.8 billion (€1.2 billion), the largest ever such deal in the Japanese banking industry. It is also likely the first time a Japanese bank has twice been bailed out by the same US private equity firm.

Shinsei’s value has suffered lately – shares are down 43 percent this year – largely because of the declining stock prices of its two consumer loan affiliates, Aplus and Shinki, and due to subprime-related losses, according to a Reuters report.

Flowers bid ¥425 per share for 358,455,953 common shares, equivalent to a 17 percent premium over Shinsei’s closing share price on Monday. The deal would give the private equity firm a 22.7 percent stake, and contingent upon approval by Japanese regulators, the bank will issue an additional ¥50 billion of shares, which would bring Flowers’ stake to 32.6 percent. The private equity firm’s founder, J. Christopher Flowers, currently owns a 5.95 percent stake in the bank, and is also the controlling shareholder of a limited partnership that was established to hold a 4.48 percent Shinsei stake, according to the tender offer, which expires 10 January 2008.

“This is the right choice for Shinsei. It’s a strong vote of confidence in our bank and our vision of building a different kind of Japanese bank,” Thierry Porte, the bank’s president and chief executive, said in a statement. “With the backing of key shareholders aligned with the bank’s senior management, we receive additional resources to develop and expand our businesses going forward.”

Post-transaction, the bank will remain listed on the Tokyo Stock Exchange, where it was floated in 2004 after an epic turnaround by a Flowers- and Ripplewood Holdings-led consortium. In 2000, the consortium acquired the troubled Long-Term Credit Bank of Japan in a $1.2 billion deal, renamed it Shinsei (“new day”), and began drastically restructuring its operations.

The turnaround is largely viewed as having been one of the most lucrative private equity deals ever. Ripplewood and Flowers raked in some ¥2.2 billion in advisory fees immediately after the transaction, made $2.1 billion in profits from the bank’s IPO, and later earned $2.8 billion when they sold a one third stake in the bank, to reduce their voting rights to 2.56 percent.

Flowers continues to be active in bidding for troubled banks; it recently tabled an offer for beleaguered UK bank Northern Rock. The firm quietly closed a $7 billion fund earlier this year, its second institutional fund.