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  7. Notice Regarding Fujitsu Access Limited Becoming a Wholly Owned Subsidiary of Fujitsu Limited through an Exchange of Shares

Notice Regarding Fujitsu Access Limited Becoming a Wholly Owned Subsidiary of Fujitsu Limited through an Exchange of Shares

Fujitsu Limited,Fujitsu Access Limited

Tokyo, May 24, 2007

Fujitsu Limited (TSE-1 Code: 6702; hereafter "Fujitsu") and Fujitsu Access Limited (TSE-1 Code: 6717; hereafter "FJAC"), in accordance with the decisions today by their respective boards of directors, announced that they have signed a share exchange agreement through which FJAC will become a wholly owned subsidiary of Fujitsu by means of an exchange of shares (hereafter "share exchange"). This agreement is outlined below.

Following approval at FJAC's annual shareholders' meeting on June 27, 2007, the exchange is scheduled to take effect on August 1, 2007. In accordance with Article 796, Section 3 of the Company Law, Fujitsu does not plan to seek approval for the share exchange at its annual shareholders' meeting.

As a result of the share exchange, Fujitsu will become the parent company of FJAC on August 1, 2007, and, as a wholly owned subsidiary, FJAC is scheduled to be delisted on July 26, 2007, with July 25, 2007 as the final trading day for its stock.

1. Objectives for Making FJAC a Wholly Owned Subsidiary through Share Exchange

The transmission and networking fields are positioned as among the core businesses of the Fujitsu Group. Up to now, the Group has worked to build these businesses by having FJAC responsible for access network business in Japan and Fujitsu responsible for overall transmission network business, including overseas.

The business environment in these areas has, however, been changing, and with the growth of broadband and IP communications, the structure of networks is becoming flat. In addition, along with new customer needs across the full spectrum of networking, such as building next-generation networks (NGNs), fixed-mobile convergence (FMC) and network distribution of video media, there is a need for more advanced next-generation technology, and distinctions among the traditional categories of core/metro/access networks are beginning to blur.

In light of these types of changes in the business environment, along with keeping pace with further advances in network technology and to respond to the growing and increasingly diverse services needs of customers in a timely manner, Fujitsu is implementing a number of organizational reforms, including realignment of Group companies. The company has determined that in order to respond flexibly to the needs of all sorts of customers at various levels, from equipment manufacturing to providing network solutions, it is essential to strengthen its operating structure to enhance collaboration between sales and product development and to further integrate its network business units.

As part of these organizational reforms, today the boards of directors of Fujitsu and FJAC have decided to make FJAC a wholly owned subsidiary of Fujitsu in order to unify governance of the companies' sales, product development, and manufacturing organizations and create a business structure for new network business. Taking into account the changing environment in the increasingly diverse network business, FJAC has, for its part, judged that deepening the sense of common purpose and direction across the entire Fujitsu Group would enable it to better leverage the dedicated leased line and access network technology it has accumulated up to now to ensure that diverse customer needs are properly met and, by expanding its business, would also be best for its shareholders and employees. In addition, the powertronics system business for which FJAC is responsible will continue to be positioned as a main business and efforts made to further enhance its competitiveness.

Through steps described here, in addition to pursuing intra-group synergies and solidifying its base for sales, development and manufacturing operations, Fujitsu will strive to create a structure that will enable it to respond flexibly to rapid business changes. In this way, seeking to expand the Group's transmission and network business as a one-stop network business solutions supplier, it aims to meet the expectations of Fujitsu's shareholders, including shareholders of FJAC who will become holders of Fujitsu shares.

In considering this share exchange, since Fujitsu holds 50.56% of FJAC's voting rights (including indirect holdings), to ensure that the share exchange ratio is fair and appropriate, the two companies held negotiations and deliberations after each side had received advice on calculating the exchange ratio from separate third-party advisors, and a mutually-agreed-upon exchange ratio was considered and decided at meetings of each company's respective board of directors.

In order to avoid conflicts of interest, corporate executive officers of Fujitsu who serve on FJAC's board of directors as non-executive directors did not participate in the decision regarding this share exchange.

2. Outline of the Share Exchange

(1) Schedule of the Share Exchange

May 24, 2007 Board of directors decides upon the share exchange
May 24, 2007 Share exchange agreement signed
Jun. 27, 2007 (tentative) Share exchange approval at annual shareholders' meeting (FJAC only)
Jul. 26, 2007 (tentative) Delisting of FJAC
Aug. 1, 2007 (tentative) Effective date of share exchange
Late Sep., 2007 (tentative) Date of share certificate delivery

Note 1: In accordance with Article 796, Section 3 of the Company Law, the share exchange will occur without Fujitsu seeking approval for the share exchange at its annual shareholders' meeting.

Note 2: The effective date of the share exchange is subject to change upon agreement by Fujitsu and FJAC.

(2) Share Exchange Ratio

  Fujitsu (Parent Company) FJAC (Wholly Owned Subsidiary)
Share Exchange Ratio 1 0.86

Note 1: Share Allocation Ratio
For each share of FJAC common stock, 0.86 shares of Fujitsu common stock will be allocated and distributed. However, for the 13,397,978 shares of FJAC common stock held by Fujitsu, there will be no allocation or distribution.

Note 2: Shares to Be Issued as a Result of the Share Exchange
As a result of the share exchange, 11,505,931 shares of Fujitsu common stock will be allocated and distributed, but because Fujitsu plans to allocate shares currently held as treasury stock (2,939,706 shares as of April 30, 2007) or that it subsequently acquires by the effective date of the share exchange, it is anticipated that no new shares will be issued.

Details on planned stock repurchases will be announced separately once they are confirmed.

(3) Approach to Calculating the Share Exchange Ratio

(3-1) The Basis and Process Used in the Calculation

To ensure that the share exchange ratio used in this share exchange was fair and appropriate, each side retained the services of independent advisors to calculate the share exchange ratio. Fujitsu retained the services of CFA Corporate Finance Corporation (hereafter "CFA") and FJAC retained the services of Nomura Securities Co., Ltd. (hereafter "Nomura").

To calculate the value of Fujitsu shares, CFA used Market Share Price Analysis. To calculate the value of FJAC shares, CFA used Market Share Price Analysis, Adjusted Book Value Analysis, Discounted Cash Flow Analysis (hereafter “DCF Analysis”), and Comparable Companies Analysis. In accordance with these valuation methods, the number of Fujitsu shares to be allocated per share of FJAC was calculated as follows: using Market Share Price Analysis, between 0.717 shares and 0.771 shares; using Adjusted Book Value Analysis, between 0.835 shares and 0.882 shares; using DCF Analysis, between 0.756 shares and 0.879 shares; and using Comparable Companies Analysis, between 1.043 shares and 1.216 shares. Additionally, after taking all considerations into account, such as the fact that Fujitsu holds 50.56% of FJAC's voting rights (including indirect holdings), and with an emphasis on Market Share Price Analysis and Adjusted Book Value Analysis, a final exchange ratio of 0.798 shares to 0.882 shares was calculated and submitted to Fujitsu.

In applying Market Share Price Analysis, average stock prices were calculated for the following periods: the one-month period from April 12, 2007 to May 11, 2007; the three-month period from February 13, 2007 to May 11, 2007; and the six-month period from November 13, 2006 to May 11, 2007.

Nomura performed Market Share Price Analysis with respect to Fujitsu, and performed Market Share Price Analysis and DCF Analysis with respect to FJAC. The number of shares of Fujitsu to be allotted to one share of FJAC implied from each analysis is as follows: Market Share Price Analysis, which implied an exchange ratio of 0.760 shares; DCF Analysis, which implied an exchange ratio of 0.800 to 1.003 shares. These results were submitted to FJAC.

Market Share Price Analysis is based on the average closing price during the period commencing on May 07, 2007 and ending on May 18, 2007.

Because shares of both companies are publicly traded, Fujitsu and FJAC have discussed and agreed to use Market Share Price Analysis as the base method for calculations and consider the calculated share exchange ratios proposed by the independent advisors mentioned above to be expert analyses and advice. In addition, considering such factors as capital ties between Fujitsu and FJAC, the exchange ratio of previous share exchanges of a similar nature, and each company's financial condition, and after negotiations and discussions, the share exchange ratio recorded above in section 2. (2) was applied and deemed to be in the best interest of each company's shareholders. At their respective boards of directors meetings held on May 24, 2007, the share exchange ratio for the share exchange was decided upon, and the two companies executed the share exchange agreement.

The share exchange ratio is subject to change by the mutual agreement of Fujitsu and FJAC if there are any significant changes in the terms and conditions underlying the calculation of the share exchange ratio.

(3-2) Relationships with Firms Used to Perform the Calculations

Neither CFA nor Nomura are considered a related party to Fujitsu or FJAC.

(4) Treatment of Share Warrants and Bonds with Warrant Attached Issued by Wholly Owned Subsidiary Involved in Share Exchange

This issue is not applicable because FJAC has not issued any share warrants or bonds with warrant attached.

3. Summary Information on Companies Exchanging Shares

(As of March 31, 2007)

(1) Trade Name Fujitsu Limited (Consolidated)
[Company becoming wholly owning parent company]
Fujitsu Access Limited(Consolidated)
[Company becoming wholly owned subsidiary]
(2) Principal Lines of Business Development, manufacture, sales and service of products in the fields of software and services, information processing, telecommunications equipment and electronic devices Development, manufacture and sales of information and communication equipment and related systems
(3) Date of Incorporation June 1935 March 1935
(4) Registered Head Office Kawasaki, Kanagawa Kawasaki, Kanagawa
(5) Representative Hiroaki Kurokawa, President Hiroaki Takeichi, President
(6) Capitalization 324,625 million yen 6,691 million yen
(7) Shares Issued 2,070,018,213 shares 26,776,968 shares
(8) Net Assets (Consolidated) 1,160,719 million yen 17,302 million yen
(9) Total Assets (Consolidated) 3,943,724 million yen 27,756 million yen
(10) Fiscal Year-End March 31 March 31
(11) Employees (Consolidated) 160,977 1,523
(12) Major Customers Governmental entities,
telecommunication carriers,
manufacturers,
distributors, and
financial institutions
Fujitsu Limited,
Fujitsu Group companies,
NTT Group companies,
telecommunication carriers,
manufacturers,
governmental entities and municipalities
(13) Principal Shareholders and Ownership as of March 31, 2007 The Master Trust Bank of Japan, Ltd. (Trust Account)
7.30%

Japan Trustee Services Bank, Ltd. (Trust Account)
4.59%

Fuji Electric Holdings Co., Ltd.
4.50%

Mizuho Trust & Banking Co., Ltd.
Retirement Benefit Trust
(for Fuji Electric Systems Co., Ltd.)
2.74%

State Street Bank and Trust Company 505103
2.09%
Fujitsu Limited
50.04%

Mizuho Bank, Ltd.
1.93%

Asahi Mutual Life Insurance Company
1.34%

Fujitsu Access Employee Shareholding Association
1.30%

CBNY DFA International Cap Value Portfolio
1.07%
(14) Major Banks Japan Bank for International
Cooperation,
Meiji Yasuda Life Insurance Company,
Mizuho Corporate Bank, Ltd.
Mizuho Bank, Ltd.,
The Bank of Yokohama, Ltd.
(15) Relationship Between the Parties Capital Fujitsu Owns 50.56% of FJAC's voting rights, including indirect holdings.
Personnel Three of FJAC's directors are Fujitsu's corporate vice presidents/standing auditors.
Business 46.5% (17.3 billion yen for the year ended March 31, 2007) of FJAC's revenues are generated by business from Fujitsu.
Status FJAC is a consolidated subsidiary of Fujitsu.
(16) Financial Results for the Three Most Recent Fiscal Years (Consolidated).
  Fujitsu Limited
(billion yen, except per share data)
Fujitsu Access Limited
(billion yen, except per share data)
Fiscal Year Ended March
2005
March
2006
March
2007
March
2005
March
2006
March
2007
Net Sales 4,762.7 4,791.4 5,100.1 45.1 38.7 41.1
Operating Income (Loss) 160.1 181.4 182.0 1.0 (0.8) 0.5
Ordinary Profit (Loss) 89.0 126.0 147.2 0.5 (1.3) 0.1
Net Income (Loss) 31.9 68.5 102.4 0.6 (2.0) (1.5)
Net Income (Loss) per Share
[Yen]
15.42 32.83 49.54 22.09 (75.65) (58.88)
Annual Dividend per Share
[Yen]
6 6 6 3 0 0
Net Assets per Share
[Yen]
414.18 443.20 469.02 782.09 705.68 646.32

4. Situation Following Share Exchange

(1) Trade Name Fujitsu Limited
(2) Principal Lines of Business Development, manufacture, sales and service of products in the fields of software and services, information processing, telecommunications equipment and electronic devices
(3) Registered Head Office Kawasaki, Kanagawa
(4) Representative Hiroaki Kurokawa, President
(5) Capitalization 324,625 million yen
(6) Total Assets (Consolidated) 3,943,724 million yen
(7) Net Assets (Consolidated) 1,160,719 million yen
(8) Fiscal Year-End March 31
(9) Summary of Accounting Procedure This transaction is expected to fall under the category of transaction with minority shareholders of the entity under common control. Goodwill is expected to be generated in conjunction with this transaction. Although the amount of the goodwill has not yet been determined, it is estimated to be small.
(10) Impact on Financial Results As FJAC is already a consolidated subsidiary of Fujitsu, the share exchange is expected to have negligible effect on both consolidated and unconsolidated operating results for the year ended March 31, 2008.

About Fujitsu

Fujitsu is a leading provider of customer-focused IT and communications solutions for the global marketplace. Pace-setting device technologies, highly reliable computing and communications products, and a worldwide corps of systems and services experts uniquely position Fujitsu to deliver comprehensive solutions that create infinite possibilities for its customers' success. Headquartered in Tokyo, Fujitsu Limited (TSE:6702) reported consolidated revenues of 5.1 trillion yen (US$43.2 billion) for the fiscal year ended March 31, 2007. For more information, please see: www.fujitsu.com

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Date: 24 May, 2007
City: Tokyo
Company: Fujitsu Limited, Fujitsu Access Limited, , , ,

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