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Business deals

$4.4bn buyout of Nasdaq-listed 51job hangs on Japan's Recruit

Chinese group's key shareholder faces decision on whether to support US delisting deal

Recruit Holdings owns 34.8% of 51job but is not part of the group bidding to take the Chinese company private. (Source photos by Yuki Kohara and Jiji) 

HONG KONG -- Tokyo blue-chip Recruit Holdings, one of Japan's biggest staffing services groups, faces a decision that could make or break a $4.39 billion bid to take former Chinese business ally 51job private and delist its shares from the Nasdaq Stock Market.

Recruit first invested in 51job in 2006 and still holds 34.8% of its Chinese counterpart, where a management-linked group put forward a renewed proposal on May 4 to acquire all outstanding shares of the company.

As the outflow of Chinese companies -- both voluntarily and not -- from the U.S. stock market continues against the backdrop of high tension between Beijing and Washington, 51job is a rare case where a Japanese player is in position to play a deciding role.

The original offer to take 51job private, at a price of $79.05 per share for the stock not held by the bidding group, was originally made in September. In the subsequent months, 51job gave no indication of how its board viewed the offer, nor did Recruit express a view.

The renewed offer this month added two private equity firms, DCP Capital Partners and Ocean Link Partners, to the bidding group but kept the offer price at the same level, a premium of 29% over the stock's closing price on May 3. The shares closed at $71.89 on Friday.

Corporate law in the Cayman Islands, where 51job is incorporated, requires two-thirds approval from shareholders for a privatization to be approved. Arun George, analyst at Global Equity Research, said in a note on the SmartKarma research platform that the buyout consortium will need Recruit's participation "to have any chance to succeed in the privatization" give its shareholding structure.

The board of directors of Recruit, the seventh-largest company listed in Tokyo by market capitalization, is set to meet on Monday, mainly to approve the company's earnings report for the year ended in March. Management is expected to meet the media to announce the results, but the board may also decide how to deal with the 51job bid.

The renewed offer has not yet prompted any public reaction from Recruit.

"We are aware that 51job, Inc. has received a revised offer, but we have nothing to comment on at this moment," the company said in a press release on Monday when it announced its full-year earnings, echoing a statement given to Nikkei Asia on May 6. 

Recruit reported 131.3 billion yen in profit for the fiscal year ended March, a 27% decrease from the previous year. Revenues of 2.26 trillion yen slightly surpassed forecasts, but were still down 5.4% year over year. Fourth-quarter revenue picked up mostly due to economic reopening in the U.S. and Europe, while hiring and marketing activities in Japan were depressed by the declaration of a state of emergency to combat the COVID pandemic.

The Japanese company is not part of the bidding consortium and appears inclined to wait for 51job's special board bid review committee decides whether to recommend the offer.

Nevertheless, the proposal seems to offer a favorable opportunity for Recruit to exit.

Recruit bought 8.45 million shares, roughly a third of what it owns now, in 2006 at $13 apiece. The acquisition cost of the remaining shares has not been disclosed, but since most of them were purchased during the following three years -- during which time 51job's stock peaked at $15.95 -- Recruit would be all but certain to bag an ample profit from the offer price of $79.05.

Moreover, the relationship with 51job has changed since the investment was first made. Back in 2006, it was not only an investment, but the start of a much wider business alliance between the two companies.

"We are delighted to partner with Recruit and together explore greater opportunities to serve the evolving needs of corporations in China," Rick Yan, president and chief executive of 51job, said then. But just three years later, the Chinese company announced it would terminate the alliance, without much elaboration on its reasoning.

At the time, Hiroyuki Honda, then executive vice president of Recruit and a director of 51job, said, "Although a formal agreement will no longer be in place, we remain committed to our investment in 51job and support the company's future growth and development."

Now Yan is at the center of the new privatization push. Recruit still has a seat on the board of 51job and receives royalties from it as payment for human resources training and online assessment materials. Its own pan-Asian talent sourcing business covers eight mainland Chinese cities.

Recruit's consideration of the bid comes at a time corporate Japan is under pressure to be more selective on holding shares for "policy purposes." According to the official annual report it submitted to the Ministry of Finance last June, Recruit held 13 listed companies' shares with this characterization and a book value of 36.77 billion yen ($337 million) as of March 2020. In the same report, the company said, "Our fundamental policy is to cut back on shares held for policy purposes."

The outcome of Recruit's decision also comes amid the push for decoupling between the U.S. stock market and Chinese companies.

This week, three state-owned Chinese telecom operators -- China Mobile, China Telecom and China Unicom -- are set to be delisted from the New York Stock Exchange, despite their pleas to stay on. China Telecom, in the meantime, is moving ahead with a plan to list its shares in Shanghai and thus procure an alternative financial market on which to trade as well as a fresh financing source. All three operators have their primary listing in Hong Kong.

David Blennerhassett, analyst at Quiddity Advisors in Hong Kong, wrote in a recent note on SmartKarma that a successful privatization would continue "the trend of Chinese companies seeking to delist in the U.S. and relist in markets outside of the United States, such as Hong Kong and Shanghai."

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