Paloma Rheem Holdings, a lesser-known Japanese manufacturer of ovens and water heaters, has made a significant bid to acquire Fujitsu General Ltd., the air conditioning unit of Fujitsu Ltd., for up to ¥257 billion ($1.6 billion). This move marks the latest attempt to consolidate the air conditioning market.
Fujitsu General air conditioning units displayed in a store.
Paloma Rheem’s offer of ¥2,808 per share represents a substantial 24% premium over Fujitsu General’s closing price on January 6th. This translates to approximately ¥164.7 billion for the acquisition of Fujitsu General’s outstanding shares. In a parallel transaction, parent company Fujitsu will divest its stake in the unit for around ¥92 billion. Fujitsu announced that Paloma Rheem plans to secure funding for the acquisition through bank loans and initiate a tender offer around July.
Following the announcement, Fujitsu General’s shares surged by nearly 22%, reaching just below the offer price, while Fujitsu’s stock saw a gain of up to 3.7% in Tokyo trading. This acquisition underscores Fujitsu’s ongoing strategic shift away from consumer products.
Historically a diversified conglomerate producing a range of electronics from laptops and chips to mobile phones and appliances, Fujitsu has increasingly focused on business-oriented communications and information technology systems. The divestiture of Fujitsu General aligns with Fujitsu’s objective to streamline its operations and shed non-core assets.
Prior to Paloma Rheem’s bid, Fujitsu had engaged in discussions with private equity firms Bain Capital and KKR & Co., along with Swedish manufacturer Nibe Industrier AB. However, these negotiations reportedly stalled due to disagreements on price. Interestingly, Paloma Rheem and Fujitsu have a history of collaboration, having previously partnered on the development of air conditioners for the North American market.
Bloomberg Intelligence analysts Ian Ma and Takeshi Kitaura suggest that this divestiture will enable Fujitsu to concentrate resources on its core IT business, which generated 84% of its adjusted operating profit in the fiscal year ending March 2024. The sale of Fujitsu General, a business with limited synergy with Fujitsu’s IT operations, is expected to have minimal impact on the company’s overall financial performance.
In a separate transaction, Fujitsu finalized the sale of its chip packaging subsidiary, Shinko Electric Industries Co., to a consortium led by the government-backed Japan Investment Corp. for approximately $2 billion. This deal, which involved protracted negotiations, had previously attracted interest from international private equity firms including Apollo Global Management Inc., Bain, and KKR. Fujitsu also has plans to divest its battery manufacturing unit, FDK Corp. These strategic moves signal a decisive shift in Fujitsu’s corporate strategy, prioritizing its core competencies in the IT sector and streamlining its portfolio for enhanced profitability and growth. The acquisition of Fujitsu General by Paloma Rheem signifies a notable development in the air conditioning industry, potentially reshaping the competitive landscape and driving further consolidation.
