The cost of buying out Kadokawa entirely could discourage Sony from acquisition deal, says Japanese finance outlet
Rumors of Sony Group and Kadokawa Corporation being in the midst of acquisition negotiations surfaced last week. Since then, Kadokawa’s CEO made a statement to officially confirm Sony’s buyout interest. In addition, Bloomberg has reported that Kadokawa wants Sony to “buy it entirely or not at all,” while the latter is more interested in “extracting” only assets related to anime and video games.
However, Japan’s Toyo Keizai reports that Sony could face significant obstacles in fully acquiring Kadokawa, a major one being how much it would cost.
Kadokawa’s current shareholders are Korean IT giant Kakao (9%) and China’s Tencent (7%), which means that there are no major shareholders that could potentially block an acquisition by Sony. However, based on calculations by Macquarie Capital Securities Japan, the deal (in case of a total buyout) is expected to be worth more than 640 billion yen (which is around $4.3 million USD based on recent conversion rates).
As part of its midterm management plan for 2024 to 2026, Sony Group said it would allocate 1.8 trillion yen towards investments and flexible share repurchases. But the company has been spending significantly elsewhere too – amidst the rising costs of music rights, Sony Music has been making $1 billion dollar deals this year to acquire catalogs of artists like Queen (source: Variety) and Pink Floyd. Considering this, plus other large expenses like acquiring game studios, Toyo Keizai speculates that Sony may not have much leeway financially.
Moreover, even if Sony makes a tender offer, the acquisition might not go smoothly, as large-scale M&A deals can invite rivals. If a bidding war caused the cost of acquiring Kadokawa to soar, this could prompt Sony to back out. Just this year, the company has been named as a potential buyer in several acquisition deals, but has since seemingly given up. One such example is the Japanese digital manga provider Infocom, which Sony initially planned a bid for (source: Bloomberg), however, Infocom was ultimately acquired by US fund Blackstone.
Alternatively, Sony could acquire 15% of Kadokawa’s shares to convert it into an equity-method affiliate, or 50% to turn it into a subsidiary – both options would strengthen the two companies’ ties without the need to acquire all shares at once, but it remains to be seen what direction negotiations will take. Meanwhile, Kadokawa’s employees have expressed both excitement and disbelief at the prospect of joining Sony and the way this would level up their anime sector.
