NEW YORK — Denon will be split off from music-software parent Nippon Columbia, its debt load will be reduced, and it will eventually go public on the Tokyo stock exchange as part of a restructuring plan engineered by U.S. investment company Ripplewood Holdings.
Under the plan, Ripplewood will own a 98 percent stake in Denon when the company is spun off in October from its parent. A listing on the Tokyo exchange could come six to 12 months later to raise additional capital.
"We plan to make [Denon] bigger and more successful," Ripplewood managing director Jeffrey Hendren told TWICE. "We will put a plan together and make it public, probably by the end of June."
Ripplewood operates a $1.2 billion fund that it plans to invest by 2004 in Japanese companies, mainly in the manufacturing sector. It manages more than $3 billion in equity capital, and led a group that last year purchased and restructured a Japanese bank. In April, it announced plans to take a 40 percent stake in a Japanese auto parts company, and last week, Ripplewood got a Japanese court's approval to lead the Seagaia Ocean Dome theme park out of bankruptcy protection.
On a consolidated worldwide basis, Hendren said, Denon "is profitable at the operational level," unlike parent Nippon Columbia, which admitted in a prepared statement to operating losses "over the last several year." He said he wasn't sure if Denon is profitable on a net basis.
Denon and its parent, like "lots of companies in Japan," have been "saddled with too much debt," he said. As part of the spin-off plan, Nippon Columbia's net debt will be reduced dramatically from about $203 million to "way below" $81 million, he said.
Denon's spin-off is part of a larger plan to turn around Nippon Columbia, which is expected to post its tenth consecutive year of consolidated net losses. Under the plan, Nippon Columbia's largest shareholder, Hitachi, will swap Columbia debt for about $32.5 million in equity, bringing Hitachi's stake in the company to 27.5 percent from 14.6 percent. Ripplewood will invest $41 million to acquire a 41.7 percent stake in Nippon Columbia.
Ripplewood will also purchase a 98 percent stake in Denon from Columbia for about $49 million. The remaining share will be owned by Hitachi, which will no longer be involved in the day-to-day management of either business.
As a separate company, Denon will have $186 million in assets and $82 million in debt, according to Reuters.
Ripplewood's ownership stake could soon be whittled down if Hendren proceeds with reported plans to list Denon on the Tokyo stock exchange within six to 12 months, leaving music software as Nippon Columbia's only business.
Denon America sales and marketing VP Steven Baker declined to comment on Denon's future direction, but said the U.S. operation is posting "another profitable year and has achieved extraordinary sales gains for the past couple of years."