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Business deals

Blackstone extends bid for Japan's Unizo in hot property market

Hotel chain balks at deal, but will ‘continue talks’ with the US investment firm

Low interest rates and the upcoming Tokyo Olympics have driven up property prices in Japan.   © Reuters

TOKYO -- U.S. investment firm Blackstone Group has again given Japanese hotel chain Unizo Holdings more time to respond to its takeover proposal as conflict over the terms prolongs a tug of war over the company and its valuable property holdings.

Blackstone said Monday that it has given Unizo until Nov. 6 to respond to its tender offer to acquire up to all of the company's outstanding common stock for 5,000 yen ($46) per share. The fund has stated that it will "assess all of its available options" if Unizo does not agree and indicated that a hostile takeover bid is on the table. Monday's announcement said this would be an option should Blackstone determine before the deadline that talks "would not be likely to result in such consent."

Unizo reiterated on Tuesday that it "would continue talks with Blackstone."

Blackstone's offer is the latest in a series of bids from players eager to buy into Japan's property market. The country's ultralow interest rates have driven investor money into real estate in search of yields, pushing prices higher, and the trend has accelerated in anticipation of the upcoming Summer Olympics here.

With the supply of attractive properties limited, there have been moves to take a back door into the market by acquiring companies with established portfolios, such as Unizo.

Unizo reported more than 220 billion yen in unrealized gains on commercial real estate holdings as of March 31. Selling them would yield an estimated 150 billion yen after taxes. The real net value of its assets is thus in the neighborhood of 260 billion yen -- well above its current market capitalization of roughly 170 billion yen.

The battle for Unizo began in July with an unsolicited bid of 3,100 yen per share from Japanese travel agency H.I.S.

SoftBank Group's Fortress Investment Group, which is based in the U.S., jumped in as a white knight, offering 4,000 yen per share.

After H.I.S. withdrew its bid, talks between Unizo and Fortress ran aground over issues including concerns about employment. Fortress has implemented the tender offer but has pushed back the deadline four times, most recently to Nov. 11. With Unizo's share price now exceeding the offer price, the bid looks unlikely to succeed.

Blackstone announced its plan for a tender offer on Oct. 15, contingent on Unizo's consent. American hedge fund Elliott Management, a major Unizo shareholder, has thrown its support behind the proposal.

The competing bids have driven up Unizo's shares to 5,120 yen, lifting its price-to-book ratio to 1.6. Yet there is a view that the hotelier is undervalued, given the rising value of its property portfolio.

The sticking point with this bid reportedly is not the valuation, but how Unizo would be run after the acquisition. Blackstone looks to sell Unizo assets to help recoup its investment and wants a free hand to decide how and when to do so, while Unizo has demanded a say in such deals.

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