Valeo has announced the launch of a takeover bid for the shares of Ichikoh, a Japanese company listed on the first section of the Tokyo stock exchange. Valeo acquired an initial stake in Ichikoh on April 27, 2000 and currently holds 31.58% of the capital.
Timing and conditions
With this takeover bid, Valeo is offering to buy shares from Ichikoh shareholders at a price of JPY 408 per share. The offer will run from November 24, 2016 to January 12, 2017. Its completion is subject to Valeo obtaining at least 50.09% of Ichikoh’s capital (including the shares it already holds), with Valeo’s stake being capped at 55,08% of the capital in order to maintain the liquidity of the Ichikoh share, which will continue to be listed on the Tokyo Stock Exchange.
The transaction is subject to the approval of the relevant anti-trust authorities.
Strategic rationale
Since Valeo’s purchase of a minority stake in Ichikoh in 2000, the two lighting specialists have developed a successful alliance. Today, the industry is undergoing technological transformations, such as the popularization of LED technology and the emergence of many innovative LED-enabled features. These trends have encouraged Valeo and Ichikoh to strengthen their ties in order to provide a better product offering to Japanese customers. In early 2014, Valeo had taken a major strategic step in expanding its overall automotive lighting systems offering with the acquisition of Osram’s 50% stake in the Valeo-Sylvania joint venture. The Ichikoh takeover bid represents another key step in the development of the Valeo-Ichikoh duo’s lighting business, providing Valeo with an excellent manufacturing footprint in Asia, mainly in Japan, but also in Thailand, Malaysia and Indonesia.
Value creation
Ichikoh, with sales of JPY 102,143 million (*) and 5,258 employees, has margins that are currently lower than Valeo’s. In the short term, this will translate into a slightly negative impact, estimated at 0.2 pt, on the Group’s operating margin. However, Valeo has demonstrated its ability to absorb lighting businesses and make them profitable, and can therefore expect to bring Ichikoh’s performance into close alignment with the Group’s within just a few years. Furthermore, the consolidation of Ichikoh by Valeo will have a slightly accretive impact on earnings per share.
To achieve the desired outcome, Valeo and Ichikoh will be leveraging (i) sales synergies that could develop out of a worldwide product offering, (ii) an optimized manufacturing footprint, (iii) R&D synergies, (iv) purchasing synergies, in particular for electronics, which represent a growing proportion of the value of innovative lighting products, and (iv) administrative synergies.
(*) €888.2 million (consolidated sales for the previous fiscal year ended March 31, 2016).
