Itochu to Invest Approximately ¥250 Billion in Dentsu Soken, Taking Company Private to Resolve Parent-Subsidiary Dual Listing — BigGo Finance

Dentsu Group disclosed on the 28th that, in response to media reports regarding its subsidiary Dentsu Soken, it plans to adopt a resolution on the matter at a board meeting the same day. The company said it will make a prompt announcement once a formal resolution is passed.

According to a report published by Nikkei’s digital edition on the 27th, Itochu Corporation (8001.T) will acquire a 38.2% stake in Dentsu Soken. The acquisition is valued at approximately ¥250 billion (approximately $1.6 billion), and Dentsu Soken will be taken private together with parent company Dentsu Group (4324.T), which holds 61.8% of Dentsu Soken’s shares.

Dentsu Group has been exploring the privatization of Dentsu Soken to resolve its parent-subsidiary dual listing. The company initiated a bidding process this summer to bring in a new shareholder, with Itochu and Fujitsu (6702.T) submitting bids. Itochu’s offer reportedly exceeded Fujitsu’s.

Transaction Overview

If the transaction is completed, Dentsu Soken will become a privately held company jointly owned by its parent Dentsu Group and Itochu Corporation. Dentsu Group will maintain a majority stake, while Itochu Corporation will acquire 38.2%, with the remaining minority shareholders’ shares expected to be purchased through a tender offer or similar mechanism.

Note: Acquisition value is an estimate based on Nikkei’s digital edition reporting.

Path to Resolving the Parent-Subsidiary Dual Listing

Dentsu Group has long faced pressure to revisit its relationship with Dentsu Soken, which has remained in a parent-subsidiary dual listing arrangement. Parent-subsidiary dual listings are one of the issues that the Tokyo Stock Exchange has been urging listed companies to address, as they can potentially harm the interests of minority shareholders.

Dentsu Soken is a company engaged in systems development and IT consulting, and represents a stable earnings base within the Dentsu Group. The privatization of the company is expected to make it easier for Dentsu Group to reallocate management resources across the group.

For Itochu Corporation, the deal is seen as aimed at strengthening its digital transformation (DX)-related business areas. The company has been expanding investments in IT services and digital fields in recent years, and is believed to be seeking to integrate Dentsu Soken’s systems development capabilities and customer base into its own business portfolio, thereby combining its trading company functions with IT capabilities.

Bidding Process and Fujitsu’s Position

Both Itochu Corporation and Fujitsu participated in the bidding process conducted this summer. Both companies were said to have anticipated synergies with Dentsu Soken’s business, but Itochu Corporation’s bid ultimately exceeded Fujitsu’s.

Fujitsu is one of Japan’s leading IT services companies, and given the significant business overlap with Dentsu Soken, concerns had been raised about antitrust review risks and the difficulty of post-merger business rationalization. Itochu Corporation, on the other hand, is not a dedicated IT services provider, so the competition law barriers associated with business integration are considered relatively low.

Next Steps

Dentsu Group plans to adopt a formal resolution at its board meeting on the 28th, with the decision expected to be announced promptly. Following board approval, a share transfer agreement is expected to be signed with Itochu Corporation, after which the tender offer process for minority shareholders will commence.

Market participants anticipate that Dentsu Soken’s share price will converge toward the tender offer price following the privatization announcement. For Dentsu Group, this marks a milestone in closing the chapter on the long-standing governance challenge of resolving its parent-subsidiary dual listing.

Once the privatization of Dentsu Soken is completed, the company is expected to be able to make more agile management decisions as a joint venture between Dentsu Group and Itochu Corporation. The focus going forward will be on how new business development unfolds utilizing the management resources of both companies.