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(Update) Japan Telecom Hldgs to Sell Fixed-Line Unit to Ripplewood

Posted on: Thursday, 21 August 2003, 06:00 CDT

Tokyo, Aug. 21 (Jiji Press)--Japan's No. 3 telecommunications group Japan Telecom Holdings Co. has agreed to sell its fixed-line unit to U.S. investment fund Ripplewood Holdings LLC for 261.3 billion yen, the two companies said Thursday.

The sale of Japan Telecom Co., wholly owned by Japan Telecom Holdings, is expected to be complete by the end of this year.

Japan Telecom Holdings is about two-thirds owned by Britain's Vodafone Group PLC, the world's largest mobile phone firm.

The move was widely expected, as the main attraction for Vodafone in its bid for control of the Japan Telecom group in 2001 was Japan Telecom's mobile phone unit J-Phone Co.

The sale of the fixed-line unit "will allow us to further concentrate our efforts on the mobile business," Japan Telecom Holdings President William Morrow, who doubles as president of Japan Telecom Co., said at a joint press conference with Ripplewood.

The move will also enable J-Phone "to further leverage this energy it gets from the overall Vodafone group," he added.

Of the 261.3 billion yen Japan Telecom Holdings will receive from the sale, 228.8 billion yen will be in cash and 32.5 billion yen in redeemable preferred shares. Japan Telecom Holdings will use the cash to reduce consolidated debt, the company said.

It will log a special loss of 150 billion yen in the current year to March 2004. The impact on its earnings will be announced later, said John Durkin, chief financial officer of Japan Telecom Holdings.

Meanwhile, Ripplewood will borrow about 200 billion yen, or over 70 pct of the acquisition costs, from 11 banks, including Bank of Tokyo-Mitsubishi, UFJ Bank and Citibank, N.A.

The deal will be Japan's first large-scale leveraged buyout, a corporate takeover financed by funds borrowed against assets of the target company.

Ripplewood will send a team of telecom sector specialists to Japan Telecom, while retaining Japan Telecom's current management team. Morrow will continue to serve as president until a replacement is selected.

Ripplewood hopes to "enhance" growth at Japan Telecom by focusing investment on the fixed-line business, the company told the conference. Japan Telecom swung back to the black in fiscal 2002, with a net profit of 15.7 billion yen.

But analysts doubt that much room remains for growth in Japan's fixed-line market, which has been badly hit by users switching to mobile phones and cut-rate Internet Protocol-based phones.

"The outlook for Ripplewood's fixed-line business is gloomy as competition in this arena in Japan is particularly intense," said Haruo Sato, senior analyst at Tokai Tokyo Research Center Co.

"In the end, Japan Telecom will end up launching further restructuring steps," a second-tier brokerage firm official said.

But as Vodafone had already carried out aggressive restructuring at Japan Telecom following its acquisition, there isn't much room for maneuver, said Tokai Tokyo's Sato.

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