Lone Star Funds, a private equity firm primarily engaged in investing in distressed assets worldwide won the bidding process to acquire Osaka Prefectural Urban Development Co. for ¥78 billion or $783 million, according to Reuters based on information obtained from a source knowledgeable about the transaction.

John Grayken Lone Star Funds

Japan’s Osaka prefecture owns 49% of Osaka Prefectural Urban Development Co., an operator of train lines and commercial trucking distribution centers. Sources said the proposal of Lone Star Funds defeated the bids submitted by Fortress Investment Group LLC (NYSE:FIG) and Nankai Electric Railway Co Ltd (TYO:9044), a local railway company.

Lone Star’s offer to Osaka prefecture

Lone Star Funds offered a 16% premium to the ¥67 billion target sales price set by Osaka prefecture. The proposal of the private equity firm showed its strong interest in the company. The acquisition of the Osaka Prefectural Urban Development Co will be the first high profile transaction of the private equity firm since it became one of the most active funds in Japan, if completed.

Lone Star Funds previously acquired distressed gold courses, failed banks, hotels, and other assets. The private equity firm managed to improve those businesses immediately and eventually sold them to other investors or listed them as public companies.

Lone Star sells Tokyo Star Bank

The private equity firm along with other shareholders sold Tokyo Star Bank to CTBC Financial Holding Co Ltd (TPE:2891) for ¥52 billion. Lone Star Funds and its fellow shareholders acquired Tokyo Star Bank in 2011.

Osaka prefecture requested in its sale documents that potential buyers of the Osaka Prefectural Development Co. should keep the business for five years. The company popularly known as OTK operates the Semboku Rapid Railway in the southern part of Osaka prefecture.

Osaka’s privatization strategy

Osaka decided to sell OTK as part of its privatization strategy. The other owners of the company include Osaka Gas Co (TYO:9532) (OTCMKTS:OSGSY), Kansai Electric Power Co Inc (TYO:9503), and Resona Holdings, Inc. (TYO:8308) and other Japanese banks, which collectively hold 51%. Since the 1960s, OTK operated under a private-public partnership when the private developer of the rail line had trouble running the business.

John Grayken founded Lone Star Funds. Its investments in Japan are headed by Takehisa Takamatsu.