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Japan Telecom Holdings Co. announced Thursday it has agreed to sell its fixed-line unit to U.S. investment fund Ripplewood Holdings LLC for 261 billion yen.

The announcement by the country’s third-largest telecom company, which is two-thirds owned by Vodafone Group PLC of Britain, capped months of speculation over what will become Ripplewood’s largest investment in Japan.

The fund has thus far bought the Long-Term Credit Bank (since renamed Shinsei Bank), Seagaia (a gigantic resort in Kyushu) and other distressed businesses.

“I believe this transaction is good for the shareholders of Japan Telecom Holdings,” the firm’s president, William Morrow, told a news conference in Tokyo. “It’s also good for Ripplewood, and lastly, it’s good for the industry overall.”

Morrow said the actual transaction will take place sometime between October and December, with Japan Telecom receiving 228.8 billion yen in cash and 32.5 billion yen in preferred shares of the sold unit.

The company said that proceeds from the sale will be used to pay off interest-bearing debts, which stood at 878.6 billion yen as of the end of March.

It added that it will need to take a 150 billion yen valuation loss charge as a result of the sale. This amount is the gap between the actual sale price and the book value of the unit.

Through the sale of the fixed-line unit, Vodafone, which acquired Japan Telecom in fall 2001, will concentrate on its J-Phone mobile services.

In what is said to be the largest leveraged buyout in Japan, Ripplewood will borrow 200 billion yen from 11 banks, including Mizuho Corporate Bank and the Bank of Tokyo-Mitsubishi. In an LBO, a buyer borrows acquisition money using the assets and cash flow of the targeted business as collateral.

The day’s announcement seemed long overdue. The rumored conclusion of the final agreement has generated widespread media speculation this year.

“It is a cheap purchase for Ripplewood, given Japan Telecom’s 90 billion yen in EBITDA (earnings before interest, tax, depreciation and amortization,)” said Hitoshi Hayakawa, a telecom analyst at ING Securities (Japan) Ltd., before the official announcement. EBITDA roughly represents cash flow from business operations.

He said that the most crucial issue for Ripplewood is its “exit strategy”– how to maximize the return on its investment through either an initial public offering or sale to another party.

With use of cell phones and Internet-protocol phones growing, Ripplewood faces a shrinking domestic fixed-line market that relies upon conventional voice communication.

“We expect to enhance Japan Telecom’s market position by investing in and managing both consumer and enterprise markets, and both voice and data products,” said Robert Aquilina, Ripplewood’s industrial partner and a former AT&T veteran.

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