Hostile Takeovers On The Rise

[Mulboyne]

Politicians and business leaders have long been concerned about the possibility of foreign businesses taking over Japanese companies because the stock market doesn't provide enough protection against pillaging gaijin. Most recently, the local steel companies got themselves into a tizzy when Mittal won control of Arcelor. Most changes to the legal code seem to be primarly designed to keep foreigners at bay. Never mind that few foreign companies would consider a hostile deal because it is difficult enough managing a Japanese company anyway without the added hardship of local opposition and bad press coverage.

Meanwhile, Japanese companies are doing just fine on their own. Livedoor's assault on Nippon Broadcasting was perceived as being backed by foreigners but in truth, Lehman Brothers only won the right to do the financing because they offered the best deal. Banks like Mizuho were only too ready to offer the same service. The Murakami attack on Hanshin was another standout but if it the whole takeover scene was just down to two arrested businessmen then it would seem very marginal.

Which is why Oji Paper's bid for Hokuetsu Paper is so interesting. The domestic paper companies have been consolidating for the last decade or so but generally always through an agreed merger. Oji Paper is a conservative company, not at all associated with disturbing the wa. They are using Nomura Securities as their banker which is the first time the country's largest securities company has openly supported a hostile bid. By way of a defence, Hokuetsu is trying to issue new shares to Mitsubishi Shoji which puts one of the nation's top keiretsu on the other side. Both these parties have serious friends.

Hokuetsu's tactics are virtually identical to those Nippon Broadcasting tried to use against Livedoor. In that case, the courts ruled them illegal so it will be interesting to see the outcome this time. What seems to be clear, though, is that the fears of a gaijin invasion are nothing compared with the concern companies ought to have about predators among their domestic peers.

[Mulboyne]

This one looks like it has the potential to be hostile:

Reuters: Japan menswear chain Aoki in $114 mln bid for rival

Aoki Holdings Inc., Japan's second-largest menswear retail chain, said on Monday that it would launch a $114 million takeover offer for smaller rival Futata Co. to help it expand in southern Japan. Aoki, a discount retailer of suits and other clothing for men, said it would offer 700 yen for each share of Futata, which is based on Japan's southern main island of Kyushu and counts fourth-largest Konaka Co. as its top shareholder...The offer price places a hefty 75 percent premium on Futata's last traded price of 400 yen... Futata, owned one-fifth by Konaka, issued a statement saying it would make an announcement after studying Aoki's bid. Konaka officials could not immediately be reached for comment, but the Nihon Keizai Shimbun business daily quoted the company as saying it had no intention of selling into the tender offer and was in agreement with Futata's founding family, setting the stage for possibly another hostile takeover fight in Japan...more...

[amdg]

Yep - I just caught the end of the news and it seemed they were saying that Aoki's offer was rejected. Probably get the full story tomorrow...

[amdg]

Well, again, I just caught part of the story, but it seems that the official word is that Futata rejected the offer because Aoki business stretches into trades other than clothing (*read pachinko etc.), and they were concerned that, if they accepted the offer, the current employees who are dedicated to 'clothing you right' might be reassigned to other businesses.

[Mulboyne]

I spoke with a journalist who had been asked to write this story up with the spin that Futata's decision was a setback for takeovers in Japan. His editor is barking mad.

Futata had been in financial trouble not so long ago which is when Konaka acquired their initial 20%. Aoki was attempting to pay 700 yen a share for Futata at a time the latter shares were trading at around 400 yen - a premium of over 70%. Futata's management instead elected to swap 2.3 Futata shares for 1 Konaka share. At Konaka's current share price, this values Futata at just over 700 yen a share. Some shareholders might have preferred to receive cash instead of shares but the largest shareholders are the Futata family and Konaka and any others have been able to sell on the market at the higher price during the bid.

So we have a corporate takeover in which shareholders of the target company see a return of 70% on their investment. Compare that with the case of Sumitomo Metal Industries turning their silicon wafer affiliate, Sumitomo Sitix, into a subsidiary through a share swap in 1998. Shareholders of the target company were treated to the novel concept of a bid discount. That is, Sumitomo Metal Industries decided to bid less than the shares were worth to obtain full control. I think we can say shareholders are getting a better deal now.