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RHJ International -- Private Equity on the Cheap

October 02, 2007 | About:
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RHJ International (RHJIF.PK) is a spin off from the New York based private equity firm Ripplewood Holdings. This division focuses on Japan and was the first private equity firm to go public, thus allowing investors to cash out on some of their huge profits. CEO Tim Collins has been in the business for years and has posted some strong returns.

RHJ chose to be headquartered in Belgium to avoid capital gains. Its investments are in Japan so there is quite a bit to follow. The relationship between the yen, Euro, and dollar affects the stock. Its shares are denominated in Euros with an ADR on the Pink Sheets in the U.S.

The portfolio covers seven sectors with close to 50% in automotive. Some of the companies it owns are wholly owned subsidiaries and some are large interests in publicly traded companies. RHJ also owns a resort in Japan and Columbia Music Japan. In addition, it was sitting on a hoard of cash of about 508 million Euros at the end of its fiscal year in March 2006.

Prior to going public, RHJ had made some absurd returns. It bought the Long-Term Credit Bank of Japan and made six times its money in five years. On Japan Telecom, it made 4 ½ times its money in nine months. According to a report by KBC Securities, RHJ made a 50% internal rate of return on its private equity funds, directly managed by Collins, before he took out his fees.

One of the nice aspects of RHJ is that management does not take out a hefty fee like traditional private equity ventures. Collins only pays himself 100,000 Euros (about $140,000). He also owns about 15% of the company with 91% of his stock in a lock-up until 2010.

Stock market legend Marty Whitman of Third Avenue Value owns about 5% of the company. It’s no surprise. Collins used to be a teaching assistant of Whitman at Yale. Whitman likes to buy stocks on the cheap. RHJ is trading at a little under book value. Unfortunately for Whitman, he has been buying on the way down. The stock is almost at its all time low.

In the past, Ripplewood made a bid for Maytag and almost bought the company. Maytag held out and instead took a bid from Whirlpool (NYSE: WHR). Had Ripplewood succeeded, it would have held Maytag in several of its private equity funds, including RHJ International. Ripplewood is now in the midst of trying to win a bid for Land Rover and Jaguar from Ford (NYSE: F). Ripplewood has even gone as far as to hire former Ford chief operating officer Sir Nicholas Scheele.

What an investor is getting with Ripplewood is a holding company that has been superbly managed in the past. The biggest risks are with the yen, Japanese economy, and how this hodge podge of companies will perform. But who knows, you might get a Jag or Land Rover out of the deal!

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