Description

RHJ International is a Belgium-based holding company led by Timothy C. Collins, the founder of Ripplewood Holdings LLC. RHJ currently has investments in four public Japanese companies (Asahi Tec, D&M Holdings, Columbia Music, and Shaklee), and also owns parts of Niles (auto parts), Honsel (auto parts) and 100% of Seagaia (a Japanese resort). The current NAV is approximately €19 per share, with cash representing about half of this value.

In March 2005, the seven businesses mentioned above were contributed (for shares) by RHJ Industrial Partners (and related trusts) to the newly formed RHJ International, which went public through a simultaneous ipo and private placement (at €19.25 per share). Tim Collins purchased approximately $50MM of RHJ shares at the time of the ipo (at €19.25 per share) and now owns 11%+ of the company; he has committed to a five-year lock-up on his shares (March 2010). Lord Jacob Rothschild is also a major shareowner, with his shares being purchased at the time of the ipo. Marty Whitman’s Third Avenue Value Fund is also a major shareholder. RHJ’s Chairman is Ronald Daniel, who had served as the Treasurer of Harvard, a member of the University’s Corporation, and Chairman of the Harvard Management Company (which oversees the endowment).

While RHJ appears fairly valued (trading around its NAV), we believe that this company is a very good opportunity for long-term investors to align oneself with a private equity investor who has been extremely successful (especially in Japan); returns are documented on page 87 of RHJ’s March 2005 prospectus. Tim Collins has stated that he hopes to make RHJ his “Berkshire Hathaway” (but focusing more on turnaround situations), and it is reassuring that he made a large purchase of stock at the time of the offering.

A benefit of the company’s incorporation in Belgium is a favorable provision contained in the Belgium-Japan tax treaty. Sales of Japanese shares by RHJ will not be subject to capital gains taxation in Japan or in Belgium. Dividends received from Japanese companies might be subject to a roughly 7-10% withholding tax in Japan, but the effective tax rate in Belgium on dividend received might only be 1.7%. Taxation of RHJ is described on pp. 561-563 of the prospectus. With respect to PFIC, Tim Collins (being a US citizen) will make every attempt to avoid PFIC status for RHJ’s US shareholders.

Catalyst

We hope to own the shares over an extended period of time; there aren’t any catalysts for near-term stock appreciation.