KDDI CORPORATION Tender Offer for J:COM, Privatization, and Merger - PowerPoint PPT Presentation

KDDI CORPORATION Tender Offer for J:COM, Privatization, and Merger with JCN October 24, 2012 President Takashi Tanaka

Disclaimer The figures included in the following brief, including the business performance target and the target for the number of subscribers are all projected data based on the information currently available to the KDDI Group, and are subject to variable factors such as economic conditions, a competitive environment and the future prospects for newly introduced services. Accordingly, please be advised that the actual results of business performance or of the number of subscribers may differ substantially from the projections described here.

2 Agenda 1. Consolidation of J:COM 2. Merger of J:COM and JCN 3. Realization of Expanded Synergies with the 3M Strategy 4. Strengthening the Alliance with Sumitomo Corporation

Consolidation of J:COM

Transaction Outline and Schedule 4 1 Establishment of an SPC for the tender offer of J:COM -Jan. 2013 2 Joint tender offer by KDDI and the SPC Jan. 2013- Mar. 2013 and consolidation of J:COM 3 Jul. 2013- Privatization of J:COM Sep. 2013 4 Jul. 2013- Merger of J:COM and the SPC Sep. 2013 5 Sale of JCN and merger with J:COM Sep. 2013- *The schedule detailed above is preliminary and subject to change *J:COM: Jupiter Telecommunications *JCN: Japan Cablenet *SPC: Special Purpose Company

Current Ownership Structure 5 Sumitomo KDDI Corporation 31.1% 40.5% 95.6% Minority J:COM Trusts 4.2% 24.2% shareholders JCN

6 1. Establishment of an SPC for the Tender Offer of J:COM Sumitomo KDDI 50% 50% Corporation SPC 31.1% 40.5% 95.6% Minority J:COM Trusts 4.2% 24.2% shareholders JCN SPC: Special Purpose Company Establishment Joint tender Merger with JCN sale and Squeeze out of SPC offer SPC merger Before tender offer

2. Joint Tender Offer by KDDI and the SPC and 7 Consolidation of J:COM Sumitomo CF KDDI 50% 50% Corporation -¥70.9B SPC 31.1% → 40.5% 40.5% X% 95.6% 24.2% Minority J:COM Trusts 4.2% → Y% shareholders JCN *CF figure (top left) for KDDI standalone *Units: JPY bn Joint tender Establishment Merger with JCN sale and Squeeze out of SPC offer SPC merger Jan. 2013 – Mar. 2013

3. Privatization of J:COM 8 Sumitomo CF KDDI 50% 50% Corporation +¥30.0B 40.5% SPC 40.5% X% → 19% 95.6% 4.2% Y% Minority J:COM Trusts → 0% shareholders → 0% Squeeze out Squeeze out JCN *CF figure (top left) for KDDI standalone *Units: JPY bn Establishment Joint tender Merger with JCN sale and Squeeze out of SPC offer SPC merger Jul. 2013 – Sep. 2013

9 4. Merger of J:COM and the SPC Sumitomo KDDI 50% 50% Corporation SPC Merger JCN J:COM Merger with Establishment Joint tender JCN sale and Squeeze out of SPC offer SPC merger Jul. 2013 – Sep. 2013

5. Sale of JCN and Merger with J:COM 10 Sumitomo CF KDDI 50% 50% Corporation +¥105.0B J:COM Merger JCN Sale of JCN *CF figure (top left) for KDDI stand-alone *Units: Billions of yen JCN sale and Establishment Joint tender Merger with Squeeze out of SPC offer SPC merger Sep. 2013 -

Transaction Summary 11 Joint management of J:COM with Sumitomo Corporation 1. KDDI to consolidate J:COM as of March 31, 2013  KDDI and Sumitomo Corporation will nominate equal numbers of board members to J:COM 2. KDDI to nominate the President of J:COM beginning in Jan. 2014 *  KDDI and Sumitomo Corporation will each nominate J:COM’s President (Co -CEO), and Chairman (Co-CEO) 3. KDDI and Sumitomo Corporation will jointly and equally guarantee the transaction debt *From 2017 onwards, nomination of the President and Chairman will be determined by discussion between KDDI and Sumitomo Corporation.

Transaction Cash Flow 12 (KDDI stand-alone basis) Cash inflow of approx. ¥50.0B (Jan. 2013-Mar. 2013) (Jul. 2013- Sep. 2013) (Sep. 2013-) Consolidation Privatization J:COM/JCN Other of J:COM Merger of J:COM Tax expense Joint tender offer Squeeze out *1 JCN sale and other *3 -¥70.9B +¥30.0B +¥105.0B *2 -¥13.4B +¥50.7B *1: Includes sale of entrusted shares after Oct. 2012. *2: Schedule *3: Corporate taxes on the sale of JCN shares and other

Total Cash Flow (KDDI stand-alone) 13 Total cost to consolidate J:COM approx. ¥300.0B Previous cash flows Present transaction -¥306.1B -¥356.8B +¥50.7B  Acquisition of J:COM stake from Liberty Global: -¥361.7B  Total investment in JCN: -¥72.4B  Tax merits and other: +¥77.3B *Includes tax merits arising from liquidation of intermediate holding company of J:COM (approx.¥56.2B)

Merger of J:COM and JCN

Financial Impact of the Consolidation 15 Consolidated revenues over ¥4.00 trillion Consolidated operating income over ¥600.0B (Additional ¥50.0B FCF per year) Operating Operating Revenues (trillions of yen) (billions of yen) income New ¥4.00 trillion ¥600.0B New J:COM J:COM 500.0 3.57 3.58 477.6 FY2012.3 FY2012.3 FY2013.3 FY2013.3 (E) (E) Post merger Post merger

Post Merger “New J:COM” 16 Merger of the two top CATV players significantly expands market share and customer base Market share Users/ARPU Multi-channel 52 % Internet 49 % Total no. of subs ~4.8M households Total RGU ~9.2M households CATV ~4.0M households Others Internet ~2.4M households J:COM J:COM Others 39% 40% Telephony ~2.8M households ARPU ~¥7,000 JCN TOKAI CNCI JCN Bundle ratio ~1.9 4% TOKAI CNCI 7% 4% 5% Mar. 2012 KDDI estimates *Source: Mar. 2012 [Hoso Journal]

“New J:COM” Geographic Coverage 17 Greater Tokyo area coverage increases 82% * significantly with the Merger Greater Tokyo Area Nationwide Coverage focused around major population centers Sapporo Sendai Kyushu Kansai “New J:COM” J:COM JCN *Home path households/Total households Mar. 2012[Hoso Journal]/Mar. 2012 [Census]

Merger Synergies 18 Acceleration of J:COM/JCN synergies (Transaction aims to reduce a proportion of the ¥80.0B in shared costs) Revenue synergies Cost synergies Consolidate Consolidate back Reduce churn rate business centers office functions Increase Strengthen Consolidate Increase programming product portfolio logistics purchasing power offerings Increase Strengthen Maximize efficiency and productivity via advertising product human resource allocation capabilities development

Realization of Expanded Synergies with the 3M Strategy

Implementation of the 3M Strategy 20 KDDI’s Competitive Edge Shifting Business Environment Multi-device, Multi-use Offering all FMC and Rapid increase in services by one company mobile data traffic (Mobile, FTTH, CATV) Business growth through the 3M strategy (Multi-network, Multi-device, Multi-use)

3M Strategy Synergies 21 Synergies with CATV Multi- Diverse program offering use Large geographic Multi- Home paths: 18.0M households * network coverage Total no. of subs: 4.8M households * Multi- Synergies with TV device * Home paths and total no. of subs are the sum of JCN and J:COM as of Mar. 31, 2012.

Evolution of the 3M Strategy through the 22 CATV Alliance

Realizing “Closeness to the Customer” through 23 Broadcast and Telecommunication Services Smart phones CATV Internet Telecom Broadcast Tablets

Strengthening the Customer Base 24 Maximizing the respective customer bases through cross-selling of products and services J:COM/JCN Home paths: Approx. 18.0M households Cross- selling Approx. 16.0M Total number of subscribers 4.8M households households *As of Mar. 31, 2012

The au Smart Value Effect on CATV 25 Significant increases in up-selling and internet subscriber additions Decrease in churn rate to 1/3 * au Smart Value subscriptions Internet subscriptions at partner CATV stations at Kansai cable station A New Large customers 11% Increase Up-selling 26% 4% Internet speed-up Before After introducing au Smart Value *Calculation of churn rate calculated off of users that registered for Cable Plus phone in 2009, against those users still subscribed to au Smart Value as of 1Q/FY2011

Promotion of Data Offloading 26 Usage of CATV infrastructure for mobile data storage KDDI Mobile Data Traffic Estimates Mobile data traffic in FY2016.3 12x 12 times the mobile data traffic in FY2012.3 A mobile infrastructure alone is insufficient for this magnitude of data storage FY2012.3 FY2016.3

Synergies with KDDI 27 Increase in Promoting au subscribers data offloading Increase au subscription Viable tool in promoting rates of J:COM/JCN users data offloading to 50% in certain areas ¥120.0B Data offload ratio * Approx. consistent at 50 % revenue increase *Smartphone data traffic during peak hours (11-12PM) over one month

Strengthening the Alliance with Sumitomo Corporation

Contribution to the Further Growth of CATV 29 Supporting the CATV business via a strategic alliance with Sumitomo Corporation Sumitomo Corporation Media Cable Plus Phone Broadcasting/ movies CATV Growth au Smart Value Retail Energy

Appendix

J:COM’s Media Business 31 Users CATV Sky Perfect TV IPTV Sports Dramas Enter- Movies tainment