OREANDA-NEWS. February 22, 2011. At a meeting of its Finance & Investment Deliberation Council on February 22, 2011, Sojitz Corporation (“Sojitz”) decided to acquire shares of Sakura Internet Inc. (the “Target Company”), a TSE Mothers-listed company (securities code: 3778), by tender offer (the “Tender Offer”).

1. Purpose of Tender Offer
(1) Summary of Tender Offer

Sojitz is the Target Company’s largest shareholder and treats the Target Company as an equity-method affiliate. It currently owns 12,718 shares of the Target Company’s common stock, equivalent to a 29.31% ownership interest (as used herein, “ownership interest” is defined as the ratio of shares owned to the Target Company’s 43,388 total shares outstanding, rounded off to the second decimal place).


Sojitz has decided to conduct the Tender Offer to acquire additional common shares of the Target Company. Sojitz has also decided to enter into two agreements in connection with the Tender Offer. The first is a business alliance agreement dated February 22, 2011, with the Target Company (the “Business Alliance Agreement”). The second is an agreement (the “Agreement Between Shareholders”) dated February 22, 2011, with the Target Company’s second-largest shareholder, Tanaka Kunihiro Office Inc.


(4,665 shares currently owned, equivalent to a 10.75% ownership interest), for the purpose of acquiring control of the Target Company as a consolidated subsidiary. Tanaka Kunihiro Office Inc. (the “Asset Management Company”) is an asset management company owned by Kunihiro Tanaka, the Target Company’s president and representative director (who currently personally owns 2,205 of the Target Company’s shares, equivalent to a 5.08% ownership interest).

Through the Tender Offer, Sojitz plans to acquire a minimum of 4,764 shares to acquire control of the Target Company as a consolidated subsidiary by the effective control standard, as explained below.

Acquisition of 4,764 shares would increase Sojitz’s shareholdings in the Target Company to 17,482 shares, equivalent to a 40.29% ownership interest, after the Tender Offer’s completion. These 17,482 shares plus the Target Company’s common shares owned by the Asset Management Company (the “Asset Management Company’s Shareholdings”), the voting rights of which are to be exercised at Sojitz’s discretion pursuant to the Agreement Between Shareholders, would total 22,147 shares, equivalent to a 51.04% ownership interest after successful completion of the Tender Offer. If the total number of shares tendered is less than the minimum of 4,764 that Sojitz plans to acquire, Sojitz will not acquire any of the tendered shares. Additionally, Sojitz and the Target Company plan to keep the Target Company’s common shares listed as a publicly traded stock even after the Tender Offer. Sojitz accordingly does not seek to acquire any more than 4,764 shares. If the total number of shares tendered exceeds the maximum of 4,764 shares that Sojitz plans to acquire, Sojitz may elect not to acquire some or all of the tendered shares in excess of 4,764. If it so elects, Sojitz will take delivery of the shares it acquires and settle the transactions in accordance with the proration procedure prescribed in Article 27-13, Paragraph 5, of the Financial Instruments and Exchange Act (Act No. 25 of 1948 as amended, hereinafter abbreviated as “FIEA”) and Article 32 of the Cabinet Office Ordinance Regarding Disclosure of Tender Offers for Shares and Other Securities by Non-issuers (MOF Ordinance No. 38 of 1990 as amended, hereinafter referred to as the “MOF Ordinance”).


Under the Agreement Between Shareholders, the Asset Management Company has agreed to (1) vote its shares at the Target Company’s shareholder general meetings in accordance with Sojitz’s instructions and (2) notify Sojitz in advance if it wishes to sell any of its common shareholdings in the Target Company to a third-party and grant Sojitz a right of first refusal to acquire any shares in the Target Company that it plans to divest. These provisions are intended to enable Sojitz to attain control of the Target Company as a consolidated subsidiary under the effective control standard. Of the Agreement Between Shareholders’ provisions, the two enumerated above are contingent upon successful completion of the Tender Offer. Additionally, the Asset Management Company has agreed with Sojitz not to tender any of its shareholdings in the Target Company in response to the Tender Offer.

The Agreement Between Shareholders was entered into between Sojitz and the Asset Management Company. The Agreement Between Shareholders stipulates that it is not binding whatsoever on Kunihiro Tanaka in his capacity as an individual shareholder of the Target Company and does not pertain to his personal shareholdings in the Target Company’s common stock. Kunihiro Tanaka and his personal shareholdings in the Target
Company’s common stock are therefore not bound or restricted in any way by the Agreement Between Shareholders.

The Target Company has informed Sojitz that it held a Board of Directors meeting attended by three of its six directors on February 22, 2011. The Target Company further reported that after careful consideration of Sojitz’s proposal with respect to the Tender Offer, all three directors in attendance unanimously concluded that becoming Sojitz’s consolidated subsidiary through the Tender Offer and pursuing the Objectives (as defined in (2) below) would serve to increase the Target Company’s value, whereupon the Target Company’s Board of Directors passed a resolution expressing its support of the Tender Offer and allowing shareholders to decide for themselves whether to tender shares in response to the Tender Offer.

Of the Target Company’s directors, Representative Director Kunihiro Tanaka also serves as president and representative director of the Asset Management Company and Director Munehisa Murakami and Nonexecutive Director Shinichi Kawaratani are employees of Sojitz. The Target Company has informed Sojitz that, to avoid any conflict of interest, all three of these directors abstained from attending said Board of Directors meeting and participating in the deliberations and voting on said resolution. The Target Company additionally informed Sojitz that said Board of Directors meeting was attended by all four of the Target Company’s statutory auditors (three of which are nonexecutive auditors) and that none of the four auditors voiced any opposition to the Board of Directors’ resolution in favor of the Tender Offer.

(2) Tender Offer Rationale and Post-Tender Offer Management Policy

As a general trading company, Sojitz is mainly engaged in sales and trading of goods. In addition to manufacturing, selling, and servicing a wide variety of manufactured goods in both domestic and overseas markets, Sojitz operates a diverse array of businesses globally. Its operations include financial activities, investments in various businesses, and planning and coordination of various projects. Sojitz has organized its operations into four segments: Machinery, Energy & Metal, Chemicals & Functional Materials, and Consumer Lifestyle Business. The Machinery segment’s IT Business Unit operates predominantly domestic ICT (Information and Communication Technology) solutions businesses, including network integration, Internet data center and corporate IT solutions businesses.

In the aim of building an IT services business revolving around network integration and system integration, Sojitz has invested in the Target Company as an equity-method affiliate, acquired Sojitz Systems Corporation as a wholly owned subsidiary, and strengthened relationships through a tender offer for the shares of Nissho Electronics Corporation. Meanwhile, corporate IT demand is shifting from an ownership model to a usership model against a backdrop of ICT innovations such as broadband and cloud computing. Sojitz believes that possessing comprehensive ICT solutions capabilities, including the ability to provide ICT functions in the form of services, is essential to achieving growth in the IT services sector.


The Target Company provides Internet data center services utilizing its own data centers and Internet backbone infrastructure. It commenced operations in 1996 in the rental server business and opened its data center in 1997. It has since been expanding its operations in tandem with the Internet’s evolution, including as a pioneer in the housing services business.

In light of the IT services industry’s environment, Sojitz believes that the Target Company’s data center business has favorable growth prospects as an essential function in the IT outsourcing sector and will prove to be key infrastructure in terms of providing ASP1, SaaS2, PaaS3, and other such services to small and medium-sized companies, a market segment targeted by Sojitz’s IT services business.

On December 27, 2007, Sojitz entered into a basic agreement with the Target Company regarding a strategic capital alliance. Based on that basic agreement, on January 25, 2008, Sojitz invested in the Target Company through an equity offering in the form of a third-party allotment (i.e., private placement) pursuant to a stock acquisition agreement entered into with the Target Company. As a result of this investment, Sojitz is currently the Target Company’s largest shareholder, owner of 29.31% of the Target Company’s outstanding common shares. Sojitz subsequently dispatched to the Target Company two directors and a total of two employees from its own workforce and one of its subsidiaries’ workforces. Sojitz has also utilized its broad network as a general trading company in pursuit of continuous growth in the Target Company’s data center business. In the process, prospects have emerged for greater synergies with Sojitz’s group companies, including realization of a one-stop service to jointly provide customers with both the Target Company’s data center services and Sojitz Systems Corporation’s IT solutions and system integration services, and development of a supplemental strategic relationship with Nissho Electronics Corporation, which is aiming to strengthen its services business targeted at IT service companies, the Target Company’s main customer base.

The Target Company is currently performing well financially. In the fiscal year ended March 2010, it earned operating income of JPY748,555,000 (up 90.8% year on year) on revenues of JPY7,812,463,000 (up 9.9% year on year). Additionally, the Target Company plans to build a new data center in Ishikari, Hokkaido, according to its June 21, 2010, press release titled “Notice of New Data Center Construction Plans” and its February 21, 2011, press release titled “Notice of Amendment to Ishikari Data Center Construction Plans and Acquisition of Fixed Assets.” The Target Company also plans to offer cloud services, which are expected to play a key role in meeting future IT infrastructure demand.

Sojitz believes that the Target Company has the potential to continue to achieve high profitability and growth in the future.

Since entering into the strategic capital alliance agreement on December 27, 2007, Sojitz and the Target Company have been strengthening their operational ties by conferring with each other on various matters on an ongoing basis. Through this process, Sojitz reached the conclusion that to further enhance the Target Company’s corporate value, it must deepen its strategic partnership with the Target Company while maintaining the Target Company’s independence.

Sojitz and the Target Company accordingly entered into the Business Alliance Agreement dated February 22, 2011, in the aim of facilitating swift strategic decision-making and execution and more fully utilizing the Sojitz Group’s customer network and operational know-how. Specifically, by acquiring control of the Target Company as a consolidated subsidiary, Sojitz aims to achieve the four objectives enumerated as follows (the “Objectives”). Sojitz and the Target Company aim to (1) expand their business domains and increase their earnings by sharing sales information and human resources and collaborating with each other to develop services and cultivate customers in new markets. Over the medium to long term, Sojitz and the Target Company aim to (2) expand their operations by cooperating in overseas markets, utilizing Sojitz’s overseas network and its overseas subsidiaries’ local knowledge, (3) strengthen the Target Company’s competitiveness by swiftly building infrastructure that leverages economies of scale, and (4) keeping up-to-date on the latest technologies by utilizing Sojitz’s network and sharing resources to gather information. On this basis, Sojitz decided to proceed with the Tender Offer.

Sojitz plans to maintain the Target Company’s current management team even after the Tender Offer’s completion. Sojitz currently has no plans to increase its representation on the Target Company’s Board of Directors beyond the two directors that it has already dispatched to the Target Company.

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