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Japan: A bridge too far?

The bridge loan Softbank has taken out to acquire Vodafone in Japan is enormous, negotiated on onerous terms and costly by Japanese standards.

By Chris Wright

Vodafone chief executive Arun Sarin Vodafone’s Sarin: chose Softbank’s bid of $15 billion because it required no further scrutiny of assets

M&A has never looked like this before, particularly in Japan. Softbank’s leveraged buyout of Vodafone KK, the Japanese operations of the Vodafone group, is a landmark for a host of reasons, not all of them all that encouraging. For a start, there’s the sheer scale of the deal. The ¥1.8 trillion ($15.3 billion) purchase price is funded in the main through a ¥1.28 trillion loan, quadrupling the previous record of ¥224 billion secured by Ripplewood Holdings when it bought Japan Telecom in 2003.

Liquidated damages

Then there’s the fact that the entire funding requirement is structured as a one-year bridge loan; this is highly unusual, particularly for a deal of such size, where more typically the funding would be divided between a bridge, a syndicated loan and other structures. On top of that, there’s the extraordinary agreement that was in place on break fees. Instead of the norm – where the seller commits a break fee to the buyer – in this case Softbank pledged to pay Vodafone a whopping ¥60 billion (Vodafone calls it “liquidated damages”) if it couldn’t go through with the deal.

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