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January 8, 2008

Japanese card unit is up for grabs

Japans largest bank, Mitsubishi UFJ Financial Group, has announced it intends to spend about 40 billion ($378.3 million) to acquire a 49 percent stake in JALcard from struggling Japan Airlines (JAL).

By Verdict Staff

Japan’s largest bank, Mitsubishi UFJ Financial Group, has announced it intends to spend about ¥40 billion ($378.3 million) to acquire a 49 percent stake in JALcard from struggling Japan Airlines (JAL). The company, hit by rising fuel and labour costs as well as several recent safety accidents, has elected to sell off some of its shareholdings in its wholly owned credit card subsidiary as part of a larger restructuring effort.
This move has attracted interest from numerous overseas investment funds and larger trading houses, and Japan’s flagship air carrier recently asked potential suitors to propose the number of shares they hoped to buy and their offering prices.
Aside from Mitsubishi UFJ, other bidders vying for a stake in the credit card company include US-based private equity firm TPG and consumer credit company Credit Saison, which is tied to Mizuho Financial Group, Japan’s third-largest bank by market value. Because of its existing business relationship with JAL, Mitsubishi UFJ is believed to have an edge over its rivals. Following the Mitsubishi offer – which was much larger than expected by the industry – Credit Saison withdrew. Mitsubishi UFJ and Credit Saison were previously seen as the front-runners, because JAL viewed the ideal buyer as either a major credit card firm or a megabank with a card company under its wing.

Surprise bidder

Japanese private equity fund Advantage Partners has recently weighed in with a bid of its own, offering to acquire JALcard with a mixture of debt and equity. It is believed that under this agreement, JAL would retain an equity stake in the card company. While the headline offer from Advantage Partners is below that of Mitsubishi UFJ, the deals have very divergent business structures and present differing potential income streams for the parent company. JAL is said to be considering both offers, and is expected to make a decision on the bidding process soon.

JALcard is ranked sixth in Japan’s credit card industry with an estimated market value of ¥100 billion. It handled transactions of ¥1.65 trillion in 2007 and has approximately 1.9 million cardholders.

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