Lone Star Funds’ $755 million bid to buy an Osaka-based train and warehouse operator was blocked by a municipal government on Monday, derailing what would have been a big comeback acquisition for the U.S. private equity firm in Japan.
The vote came out against Lone Star by a narrow margin, 53 to 51. While no official reason was given, some local assembly members had voiced concerns before the vote that firms with a public remit like railways should not be sold to funds with a short-term investment horizon.
Lone Star’s track record in Japan has been one of quickly exiting its investments after only a few years.
The vote also underscored the difficulties private equity has had in Japan in winning high-profile deals.
“Basically, in Japan private equity is treated like a second-class citizen and people think that corporate restructuring should be done by banks,” said Yasushi Ando, chief executive of domestic private equity firm New Horizon Capital Ltd.
Lone Star, a distressed asset investment specialist, last month won the right to buy the Osaka Prefectural Urban Development Co for 78 billion yen, 16 percent higher than a target price set by the local government and outbidding its closest rivals Nankai Electric Railway Co and Fortress Investment Group.
Other bidders included J-Will Partners Co, CVC Asia Pacific Ltd and Goldman Sachs.
Osaka prefecture owns 49 percent the company while Osaka Gas Co, Kansai Electric Power Co and Japanese banks including Resona Holdings Inc own the rest.
A representatives for Lone Star declined to comment.
An Osaka prefecture official told Reuters the local government will take a fresh look at whether or not to sell the railway company.
Lone Star raised about $7 billion for its Lone Star Real Estate Fund III in October with part of the money aimed at investments in Japan.
Past investments in the country by the Dallas-based firm include Tokyo Star Bank, distressed golf courses and hotels. In 2009, Lone Star’s planned takeover of a failed Japanese real estate investment trust, New City Residence Investment Corp, was blocked by creditors unhappy with the terms offered.
The fund has been quiet in Japan in recent years as the economy stagnated but signs of a recovery on the back of aggressive measures taken by Prime Minister Shinzo Abe have helped rekindle interest in the country.