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Last Updated: 2009.01.28

FR launches tender offer for LINK THEORY HOLDINGS CO., LTD.

FAST RETAILING CO., LTD.
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FAST RETAILING CO., LTD. (the “Company”) resolved at the meeting of its Board of Directors held on January 28, 2009 to acquire common stock, stock purchase warrants (shinkabu yoyaku ken), and Zero Coupon Convertible Bonds due 2018 (bonds with share purchase warrants, shinkabu yoyakuken-tsuki shasai, the “Convertible Bonds”) of LINK THEORY HOLDINGS CO., LTD. (Ticker 3373, TSE Mothers, the “Target”) through a tender offer (the “Tender Offer”).  The details of the Tender Offer are expanded below.

Purpose of the Tender Offer

(1) Summary of the Tender Offer

The Company currently owns 51,360 shares (the percentage of the shares owned against the total number of the issued shares as of November 30, 2008 (the “Percentage of the Number of Shares Owned”) being 32.32%) of the common stock of the Target through the Company (directly holding 23,200 shares) and its wholly-owned subsidiaries, Global Retailing Co, Ltd. (“GR”) (holding 223,200 shares) and Global Investment Co. (“GI”) (holding 4,960 shares), and the Target is an affiliate of the Company accounted for by the equity method.

For the purpose of making the Target into a wholly-owned subsidiary, the Company will conduct the Tender Offer to acquire all of the shares of common stock of the Target (which includes the common stock of the Target which has been issued, or may be issued, on the exercise of the share purchase warrants issued by the Target (the “Share Purchase Warrants”), or the share purchase warrants incorporated in the Convertible Bonds, up to the last day of the Tender Offer Period. The same applies throughout this document.), the Share Purchase Warrants and the Convertible Bonds, except the shares of common stock of the Target owned by the Company, GR and GI.

In connection with the Tender Offer, the Company has entered into Tender Agreements with Mr. Chikara Sasaki (“Mr. Sasaki”), (holding 34,560 shares, the Percentage of the Number of Shares Owned being 21.75%) and R S Investment Co., Ltd. (holding 19,200 shares, the Percentage of the Number of Shares Owned being 12.08%), (Mr. Sasaki and R S Investment Co., Ltd. are shareholders of the Target and collectively referred to as “Mr. Sasaki, et. al.”) pursuant to which Mr. Sasaki, et. al. will tender all of their shares of common stock of the Target in the Tender Offer.  Also, the board of directors of the Target resolved to endorse the Tender Offer at its meeting held on January 28, 2009.

(2) The Background and Reasons for the conduct of the Tender Offer, and the Subsequent Management Policy

The Target was established in December 1998 for the purpose of planning, proposing and managing the production-operation of private brand clothing targeted at department stores.  The core brand “Theory” proposes styles using concepts such as the new basics, which incorporate superb fit, refined looks and subtle trends.  The Target develops brands such as “Helmut Lang” in the U.S., Japan, Europe and Asia.  The core brand “Theory” has continued to grow steadily since its initiation in 1997, and has established a position as a leading brand in department stores and specialty stores, etc. in Japan and the U.S.  The core brand’s global sales were 46,788 million yen for the period ending in August 2008.

However, because of the slowdown of personal consumption due to the global economic deterioration stemming from the financial crisis which started in the U.S., the business environment surrounding the Target has become extremely difficult.  The current difficult business environment is expected to continue.  The revision of the business performance forecast, published by the Target on January 28, 2009, represented a large decline from the previous forecast, and it is believed that the operating environment and financial situation will continue to face difficulties in the future.

The Company Group intends to develop the brands that have good concepts and high potential for global development, to become global brands utilizing the funding ability and the business platform of the Company Group.  As a part of its plan the Company Group began capital participation in the Target in January 2004.  Thereafter, as well as mutually sharing the know-how and strengths of the Company and the Target and respecting each other’s independence, the Company dispatched one (1) managing director and one (1) outside director to the Target and established a mutual cooperation structure.

However, in order to further develop the global brand business as one of the core businesses of the Company Group, the Company Group determined that a more solid cooperation structure with the Target was necessary.  In addition, the Company Group determined to further strengthen the operation of the Target by adopting a business structure for the Target that has a clearer commitment from the Company Group.  Therefore, for the purpose of making the Target a wholly-owned subsidiary of the Company, the Company Group decided to conduct the Tender Offer.

By making the Target a wholly-owned subsidiary, the Company and the Target will, with full respect for the independence of the Target’s brands, expand the business of the Company Group in the U.S. utilizing the business platform of the Target and accelerate the mutual promotion of the global development of the brands through cooperation with the global brand business of the Company Group in Europe.  Further, under the concept of “Global One,” the Company’s policy of managing the entire business of the Company Group to the highest global standard and through the realization of synergies by sharing know-how such as store operation and inventory control, and business infrastructure such as the production system and information systems, the Company Group aims to develop the Target into an entity with higher growth and profitability, strengthen the global brand business of the Company Group, further enhance the corporate value of the entire group, and become, through the entire group, the best speciality store retailer of private label apparel in the world.

Although there is the possibility of change after consultation with the Target in the future, the Company is not currently planning to alter the composition of the directors and officers of the Target after the completion of the Tender Offer.  There are currently no specific plans to make significant changes or take other actions that would have material effects on the operational policy of the Target after the completion of the Tender Offer.

(3) Process leading up to the Conduct of the Tender Offer (measures to secure fairness and measures to avoid conflicts of interest)

As stated in “1. (4) Policy of the Organizational Restructure, etc. after the Tender Offer” below, the Company plans to make the Target its wholly-owned subsidiary.  Even though the Target is not a subsidiary of the Company as of today, the Company owns 51,360 shares of the common stock of the Target, including indirect ownership (Percentage of the Number of Shares Owned being 32.32%) and the Target is an affiliate of the Company accounted for by the equity method, and the Company dispatches to the Target one (1) managing director and one (1) outside director.  One (1) outside corporate auditor of the Company holds the position of the Target.  Also, the current management team of the Target is, in principle, expected to continue to be involved in the management of the Target after the Tender Offer.  Because of these circumstances, the Company and the Target wish to avoid any arbitrariness or conflict of interest in the conduct of the Tender Offer, to secure the fairness of the purchase price, and to ensure fair decision-making with regard to the entire transaction involving the Tender Offer.

① Examination by the Company

The Company has appointed Nomura Securities Co., Ltd. ("Nomura Securities"), a third party independent of the Company and the Target, as its financial advisor, obtained the advice of Nishimura & Asahi, the Company’s legal counsel, independent of the Company and the Target, and has carefully conducted relevant discussions and examinations. 

The Company owns 51,360 shares of the common stock of the Target, including indirect ownership (the Percentage of the Number of Shares Owned being 32.32%) and the Target is an affiliate of the Company accounted for by the equity method, and the Company dispatches to the Target one (1) managing director and one (1) outside director.  One (1) outside corporate auditor of the Company holds the position of outside corporate auditor of the Target.  In order to increase the fairness and transparency in the decision making concerning the entire transaction involving the Tender Offer, the Company established an Investment Committee, consisting of the Company’s outside directors and corporate auditors, on January 9, 2009.  Toru Hanbayashi, Nobumichi Hattori, both of whom are outside directors of the Company, Akira Tanaka, who is a full-time corporate auditor of the Company, and  Norihiko Shimizu and Akira Watanabe, both of whom are outside corporate auditors of the Company, were appointed as members of the Investment Committee.  The board of directors of the Company requested that the Investment Committee advise whether the Company should make a proposal to the Target on the transaction involving the Tender Offer and whether the purchase price in the Tender Offer (the “Tender Offer Price”) is reasonable.  The Investment Committee examined the request, paying attention to the following points: (i) whether the conduct of the entire transaction involving the Tender Offer contributes to the enhancement of the Company’s corporate value, and furthers the interests of its shareholders, (ii) whether the terms and conditions of the transaction, including the Tender Offer Price, are reasonable for the Company and its shareholders, and (iii) whether the entire scheme of the transaction, including the conduct of the Tender Offer, has been and can be conducted through a fair process.  As a result of its examination, on January 28, 2009, the Investment Committee recommended to the board of directors of the Company that it is reasonable for the Company to make a proposal on the transaction involving the Tender Offer to the Target, and that the Tender Offer Price is reasonable.

In determining the purchase price for the common stock in the Tender Offer, the Company requested that Nomura Securities, as independent financial advisor and third party appraiser, evaluate the share value of the Target, to be used as reference material for the examination of the purchase price for the common stock in the Tender Offer.  With reference to the results of the share valuation reported in Nomura Securities’ valuation report (please refer to “2. Overview of the Tender Offer", “(2) Background for the Determination of the Tender Offer Price”, “① Calculation Basis” below.), the Company examined the results of due diligence investigations on the Target, the likelihood that the Target would endorse the Tender Offer, the Target's stock price performance, the level of premiums attached to the tender offer prices in past non-issuer tender offers for equity securities, the expected number of shares tendered and other relevant factors, including the results of consultation and negotiation with the Target and Mr. Sasaki, et al. (who are the major shareholders of the Target) and the recommendation from the Investment Committee.  Finally, the board of directors of the Company, at its meeting held on January 28, 2009, determined the purchase price of common stock in the Tender Offer as 170,000 yen per share.  The purchase price for the common stock in the Tender Offer represents (a) a premium of 70.00% (rounded to the nearest hundredth of one percent) to the Target’s closing price of 100,000 yen quoted on the Mothers Market of the Tokyo Stock Exchange on January 27, 2009 (the day immediately preceding the day of the Company’s board meeting that resolved to commence the Tender Offer), (b) a premium of 72.83% (rounded to the nearest hundredth of one percent) to the Target’s average closing price quoted on the Mothers Market of the Tokyo Stock Exchange for the one-month period ended January 27, 2009, of 98,361 yen (rounded to the nearest whole number) (c) a premium of 76.88% (rounded to the nearest hundredth of one percent) to the Target’s average closing price for the three-month period ended January 27, 2009, of 96,110 yen (rounded to the nearest whole number) and (d) a premium of 35.43 % (rounded to the nearest hundredth of one percent) to the Target’s average closing price for the six-month period ended January 27, 2009, of 125,525 yen (rounded to the nearest whole number).

Nomura Securities calculated the Target’s share value utilizing the methods of average stock price analysis, comparable company analysis, and discounted cash flow analysis (the “DCF Analysis”) in its valuation report.  On January 28, 2009, the Company received a fairness opinion from Nomura Securities to the effect that the purchase price of 170,000 yen per share of common stock is reasonable for the shareholders of the Company.

Under the conditions of exercise of the Share Purchase Warrants, the holder of the Share Purchase Warrants is required, in principle, to be a director, a corporate auditor or an employee of the Target or the Target’s subsidiaries at the time of its exercise.  Taking into consideration this exercise condition, the purchase price was determined to be 1 yen, because it is possible that the Company would not be allowed to exercise the Share Purchase Warrants purchased through the Tender Offer.

Under the situation the shares of common stock of the Target have been traded far below the Conversion Price (as defined below), the Company has determined that the value of the Convertible Bonds should be considered to be substantially the same as the value of a straight bond having a maturity date of May 12, 2009.  Taking into consideration the yield of companies comparable to the Target, the time left until the selected redemption date of May 12, 2009 and other relevant factors, the Company has calculated the value of the Convertible Bonds as 4,950,000 yen.

Tadashi Yanai, Chairman, President and CEO of the Company, holds the position of chairman and director of the Target.  Masa Matsushita, Director of the Company, holds the position of outside director of the Target.  Therefore, in order to avoid any arbitrariness in the process of the Company’s decision-making and to ensure the fairness and transparency of the Tender Offer, they refrained from participating in the discussions and the resolutions relating to the implementation of the Tender Offer, including the determination of the Tender Offer Price at the meetings of the board of directors of the Company and the discussions and negotiations with Mr. Sasaki, et. al. on the part of the Company.  Takaharu Yasumoto, Corporate Auditor of the Company, holds the position of outside corporate auditor of the Target.  Therefore, in order to avoid any arbitrariness in the Company’s decision-making process and to secure the fairness and transparency of the Tender Offer, he refrained from participating in the discussion relating to the implementation of Tender Offer, including the determination of the Tender Offer Price, and from expressing his opinion at the meetings of the board of directors of the Company.

② Examination by the Target

The Target has appointed as its financial advisor, Nikko Citigroup Limited ("Nikko Citigroup"), a third party independent of the Company and the Target, and requested the calculation of the share value of the common stock of the Target.  Based on the foregoing, the Target obtained from Nikko Citigroup the valuation report on the common stock for the share value of the Target dated January 28, 2009 to be used as reference material for the examination of the reasonableness of the purchase price for the common stock in the Tender Offer.  In the valuation report, Nikko Citigroup made the evaluation of the common stock utilizing the methods of average stock price analysis and discounted cash flow analysis.

Prior to the meeting of the board of directors held on January 28, 2009, as well as the receipt of the opinion from Nikko Citigroup to the effect that the purchase price of common stock in the Tender Offer is reasonable from a financial perspective, the Target received an explanation thereon.

On January 8, 2009, based on its resolution, the Target’s board of directors established a special committee in order to secure the fairness of the Tender Offer and to enhance the transparency and the objectivity of the transaction, and requested that the special committee express to the Target’s board of directors its opinions about whether the Target’s board of directors should approve of, refuse, or withhold its opinions on, the Tender Offer.  Etsuo Doi, an attorney-at-law who is independent of the Target and the Company, Akio Samejima and Shinji Ueno, both of whom are full-time corporate auditors of the Target who are independent of the Company (a total of three (3) persons) have been appointed as members of the special committee.  From January 8, 2009, considering such issues as whether the Tender Offer will be conducted through fair procedures and the interests of the shareholders of the Target are being considered, etc., the special committee conducted an examination on the content of the opinions that must be expressed by the board of directors of the Target regarding the Tender Offer.  In connection with such examination, with reference to the valuation report submitted by Nikko Citigroup, the financial advisor to the Target, the special committee received from Nikko Citigroup reports on the status of the discussions and the negotiation with the Company on the Tender Offer Price and the explanation on the fairness of the Tender Offer Price.

Further, the special committee appointed its legal counsel on its own separately from the legal counsel of the Target, and has received legal advice on the contents and the manner of the recommendations on the matters requested to be advised on.  In consideration of the results concluded by the above procedure, after careful examination of the matters requested to be advised on, on January 28, 2009, the special committee submitted a recommendation to the board of directors of the Target to the effect that fair procedures have been adopted and the interests of the shareholders of the Target have been considered in the Tender Offer and conclusion that the special committee has no objection to the Tender Offer.

In response to the above, the board of directors of the Target has, in consideration of the advice from Nikko Citigroup, its financial advisor, and  Mori Hamada & Matsumoto, its legal counsel, carefully conducted an examination of the content of the recommendations of the special committee, the content of the opinion received from Nikko Citigroup to the effect that the purchase price of common stock in the Tender Offer is reasonable from a financial perspective , and the terms and conditions concerning the Tender Offer and other matters.  As a result of such examination, due to the possibilities of the utilization of the management resources of the Company through the further enhancement of the cooperation with the Company and the synergies, etc. in the aspects of the businesses and the finances to be realized by the Target through the Target becoming a wholly-owned subsidiary of the Company, determining that the Tender Offer contributes to the enhancement of the Target’s middle-to-long-term corporate value in the future, that the Tender Offer Price and other various terms and conditions are reasonable, and that the interests of the shareholders of the Target are being considered through fair procedures, and opportunities for the sale of the common stock of the Target at an appropriate price to the shareholders are being given, the board of directors of the Target resolved to endorse the Tender Offer.  The Target also resolved at the meeting of the board of directors above as to the recommendation to tender shares in the Tender Offer to the shareholders of the common stock of the Target, and to leave the question of the tender of the Share Purchase Warrants and the Convertible Bonds in the Tender Offer up to the holders of such Share Purchase Warrants and Convertible Bonds.

Among the directors of the Target, as Tadashi Yanai and Masa Matsushita also hold the positions of representative director and director, respectively, of the Company, from the viewpoint of the avoidance of conflicts of interest, Tadashi Yanai and Masa Matsushita did not attend the meeting of the board of directors of the Target above, nor did they participate in the discussions and negotiations with the Company on the part of the Target.  Chikara Sasaki, the president and representative director of the Target, is a top shareholder of the Target, and his direct and indirect shareholding ratio totals approximately 34%.  He has entered into an agreement with the Company to the effect that he will tender the common stock of the Target that he holds to the Tender Offer, and the possibility of conflict of interest with the Target can not be ruled out.  Therefore, in order to secure the fairness of the resolution, he has not served as a chairperson at the meeting of the board of directors of the Target for the endorsement of the Tender Offer, and Makoto Hata was elected as a chairperson by members of the board, and Chikara Sasaki did not express any opinions in the discussions and abstained from voting on the resolution.

Further, the full-time corporate auditors of the Target who participated in the meeting of the board of directors above expressed opinions to the effect that they do not object to the board of the directors of the Target expressing their opinion to endorse the Tender Offer.  Among the corporate auditors of the Target, Takaharu Yasumoto holds the position of the outside corporate auditor of the Company.  Also, Kenji Takai is a member of the Code of Conduct Committee and Compliance Committee member of the Company.  Therefore, as the possibility of conflicts of the interest with the Target can not be ruled out, in order to secure the fairness of the resolution, they refrained from participating in the meeting of the board of directors above, and from expressing their opinions on the resolutions.

(4) Policy of Organizational Restructure, etc. after the Tender Offer

As stated above, the Company plans to make the Target a wholly-owned subsidiary of the Company through the Tender Offer and subsequent procedures (the “Procedures”).  If the Company cannot purchase the entire shares of common stock of the Target, excluding the shares held by GR and GI, as the Procedures after the completion of the Tender Offer, the Company currently plans to request that the Target (i) convene a general meeting of shareholders, setting a date on or after the settlement date of the Tender Offer as the record date, to approve proposals: (a) to amend partially the articles of incorporation of the Target to change the Target into a corporation with classes of shares as stipulated by the Company Law, (b) to amend partially the articles of incorporation of the Target to make all the common stock issued by the Target subject to a right of redemption by the Target with the approval of a general meeting of shareholders (Zenbu-Shutoku Joko); and (c) to deliver a separate class of Target shares in exchange for the redemption of such common stock in its entirety, and (ii) convene a general meeting of the common shareholders as a class to approve the proposal to amend partially the articles of incorporation as set out in (i) (b) above.  The Company, GR and GI (the “Company, et. al.”) plan to vote in favor of the approvals at the general meeting of shareholders and the general meeting of common shareholders as a class.  After the respective procedures above have been completed, all of the common stock issued by the Target will be changed into class shares subject to a right of redemption by the Target with the approval of a general shareholders meeting (Zenbu-Shutoku Joko), and the Target will redeem all such shares.  Although the shareholders of the Target will be entitled to receive a separate class of shares, the Target will not apply for listing of such shares.  The Target’s shareholders, who are entitled to only receive a fraction less than one (1) share of the Target, will receive the cash equivalent of such fraction, pursuant to procedures under Japanese laws and ordinances.  Unless there is an unavoidable obstacle, the amount of cash that the shareholders will receive is expected to be calculated based on the Tender Offer Price for the Target’s common stock.  However, the amount of such cash may be different from the purchase price in the Tender Offer.  The number of shares to be delivered to shareholders in exchange for the redemption of common stock has not been determined at this moment, but, such number of shares will be determined so that the holdings of shareholders other than the Company, et. al. shall be limited to fractions of less than one share of the Target in order that the Company, et. al. shall own all the issued shares of the Target.

With regard to the procedures set out in (a) through (c) above, the Company Law provides that (i) shareholders have the right to demand the company purchase their shares upon an amendment to the articles of incorporation making the common stock subject to a right of redemption by the issuer (Zenbu-shutoku Joko) as specified in (b) above, in accordance with Articles 116 and 117 of the Company Law and relevant ordinances and (ii) shareholders may file a request for determination of the redemption price with the court in accordance with Article 172 of the Company Law and relevant ordinances if a general meeting of shareholders approves the redemption of the shares, as stated in (c) above.  The purchase prices and the redemption prices under (i) and (ii) above are finally determined by the court.  Accordingly, the price received by the shareholders in the case of (i) and (ii) above may be different from the purchase price of the Target’s common stock in this Tender Offer.  Shareholders must evaluate and decide on their own responsibility whether to make such request and/or filing. 

With regard to (a) changing the Target into a corporation with classes of shares as stipulated in the Company Law; (b) making the common stock subject to a right of redemption by the Target with the approval of a meeting of shareholders (Zenbu-shutoku Joko); and (c) delivering the separate class of Target shares in exchange for the redemption of such shares as stated above, other procedures that can effectively achieve the equivalent result may be performed depending on the interpretation by the authorities of related laws and ordinances, the shareholding level of the Company, et. al., circumstances regarding the shareholdings of shareholders other than the Company, et. al., and other relevant factors.

The Company will not make any solicitation for the approval of the shareholders of the Target at the general meeting of shareholders above.  Shareholders should consult their own tax advisors as to the tax treatment of the procedures described above.

The board of directors of the Target resolved at its meeting held on January 28, 2009 to take the necessary steps to convene a meeting of the bondholders after the expiration of the tender offer period of the Tender Offer, and to propose to the bondholders that the Target revise the terms and conditions of the bond and the relating trust deed in order to give the Target a right of early redemption to redeem the entire outstanding Convertible Bonds at 104% of principal amount.  If the revisions of the terms and conditions and the trust deed are approved at the meeting of the bondholders, the Bonds with Share Purchase Warrants are expected to be redeemed by the Target after the settlement of the Tender Offer.

(5) Expectation of Delisting

Because the Company has not set a maximum limit to the number of shares of common stock to be purchased in the Tender Offer, the Target’s shares of common stock may be subject to delisting pursuant to certain procedures if this Tender Offer results in such shares meeting the delisting standards of the Tokyo Stock Exchange.  The Company plans to make the Target a wholly-owned subsidiary of the Company in accordance with the policy described in “(4)Policy of Organizational Restructure, etc. after the Tender Offer” above.  In such case, the Target’s shares of common stock will be delisted pursuant to certain procedures set out in the delisting rules of the Tokyo Stock Exchange.  The Target’s shares of common stock may not be sold or purchased on the Tokyo Stock Exchange after delisting.  Also, the Target will not apply for listing the class of shares which the shareholders of the Target will be entitled to receive in exchange for the redemption of the common stock of the Target in the procedure to make the Target a wholly-owned subsidiary.

On the presumption that the Target will be a wholly-owned subsidiary of the Company, the Target resolved at the meeting of the board of directors held on January 28, 2009 that it would abolish the shareholder special benefit plan, with the final shareholder special benefit plan to be open to the shareholders who are entered or recorded in the shareholder register as of February 28, 2009.  The names of the shareholders on the shareholder register will not be changed before the successful completion of the Tender Offer, even if the shareholders tender their shares to the Tender Offer on or before February 28, 2009.  Therefore, the shareholders who tender their shares to the Tender Offer and who are entered or recorded on the shareholder register as of February 28, 2009 will be subject to the shareholder special benefit plan having a record date of the same date.

(6) Matters concerning important agreements relating to the tender between the Company and the Target’s shareholder(s)

The Company entered into Tender Agreements with Mr. Sasaki, et. al., the large shareholders of the Target, on January 28, 2009, pursuant to which Mr. Sasaki, et. al. will tender all of their shares of common stock of the Target (a total of 53,760 shares, the Percentage of the Number of Shares Owned being 33.83%) in the Tender Offer.

 PDFPlease see here for details.

 PDFTender Offer Explanatory Statement

 PDFPublic Notice of Commencement of Tender Offer

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