Citi Bellsystem24 Sale Talks Heat Up

(Reuters) – Global buyout firms including Permira and KKR are set to bid for a core Citigroup (C.N) asset next week in a deal worth more than $1 billion, grabbing a rare opportunity for them to chase big investments in Japan.

Around 20 buyout firms have reviewed the books of Bellsystem24, a Japanese telemarketer owned by Nikko Principal Investments, the private-equity arm of Citigroup, but only four or five may submit formal bids next week due to the deal size, said sources familiar with the situation.

Besides Permira and Kohlberg Kravis Roberts & Co, potential bidders include CVC Capital and Bain Capital. Some firms, which are not actively working on the deal now, may jump into the race if they get invited to partner prominent bidders, according to the sources, who did not wish to be identified because the process is not public.

“This is the only mega deal we have seen in the past few years,” said an official at a Tokyo-based private equity firm. “In Japan, where large companies are still reluctant to take drastic decisions to sell their non-core assets, it is difficult to see a big deal that is available for private equity.”

The Bellsystem24 deal would be the largest transaction involving foreign private equity firms since October 2007 when Permira agreed to buy agrichemical company Arysta LifeScience Corp for $2.2 billion.

Permira has not made any investments in Japan since then.

Bellsystem24 would be a perfect match for KKR, which said it was targeting companies with “large capitalisation” in Japan. KKR opened an office in Tokyo in 2006 but has not yet made a major investment in Japan.

For KKR, a Bellsystem24 deal would follow its purchase of Oriental Brewery for $1.8 billion from Anheuser-Busch InBev INTB.BR in South Korea. 

EXPENSIVE?

The price may heat up not only because the deal is competitive but also because of the availability of loans. Japanese mega banks, which include Mitsubishi UFJ Financial Group (8306.T) and Mizuho Financial Group (8411.T), which were less hurt by the global financial crisis, are willing to lend money, the sources said.

But even for KKR and Permira, which are keen to compete for the Citi asset next week, the price is now the top challenge in the bidding as both believe the $1.5 billion target eyed by Citigroup is too high, said the sources.

“The $1.5 billion price tag is something that Citi targets but I don’t think you will see the deal done based on this price level as there are many concerns about the real value of the asset,” said one of the sources.

One private equity official said the price should be around $1.2 billion based on Bellsystem24’s earnings before interest, taxes, depreciation and amortisation — a cash flow measure known as EBITDA.

Another source noted a long-term telemarketing contract outsourced by Japanese telecom Softbank Corp (9984.T) has become a stable profit channel for Bellsystem24.

However, there is no promise that the contract will be renewed or renewed under current conditions with high profit margin for Bellsystem24 when it expires by 2015, he added.

“If the key Softbank contract is not be renewed, you can argue whether Bellsystem should be worth that much money, regarding the potential for its growth,” he said, referring to the $1.5 billion price tag.

The transaction is part of Citigroup’s global effort to unload assets to bolster its capital base.

Citigroup, once the world’s largest financial services provider which was rescued by the U.S. government in the financial crisis, declined to comment.

Bidders are expected to submit their first bids by Sept. 1. Nikko Citigroup, the Japanese investment banking arm of Citigroup, and Goldman Sachs Group Inc (GS.N) are advising Citi on the sale.

Bellsystem24, which operates call centres, competes against Moshi Moshi Hotline Inc (4708.T) and Transcosmos Inc (9715.T) in Japan.

By Junko Fujita and George Chen
(Additional reporting by Emi Emoto and Wakako Sato; Editing by Muralikumar Anantharaman)