Japan: Sapporo takeover double-edged?

The move earlier this month by U.S. hedge fund Steel Partners to acquire Sapporo Holdings Ltd. is again raising the spectre in corporate Japan of foreign raiders taking over established Japanese companies to turn a quick profit, Japan Times reported February 27.

But, by the same token, some analysts assert the practice also gives Japanese industries a much-needed push to realign.

In December, Steel Partners earned several billion yen when it sold its stake in instant-noodle maker Myojo Foods Co. to industry leader Nissin Food Products Co. after Myojo pursued a capital alliance with Nissin to ward off a hostile takeover by the U.S. investment fund.

As it did with Myojo, analysts say Steel Partners may be waiting for the arrival of a white knight to push up prices before selling its stake in Sapporo. One consequence, however, would be a realignment of the nation's beer industry.

"A takeover move by an investment fund can fulfil the function of triggering realignments in an industry that is actually in need of reorganization," said Yasuhiro Matsumoto, a senior analyst at Shinsei Securities Co. "Corporate mergers do not take place unless driven by a sense of crisis," he said, noting that Sapporo, which is struggling with falling sales, should seek an alliance with one of its rivals to rehabilitate itself.

As the population declines and people become more health conscious, the prospects for the domestic beer market -- which has been shrinking for a decade -- are dim. Brewers are under pressure to consolidate and diversify their businesses.

Naoko Nemoto, a managing director at Standard & Poor's Tokyo branch, believes that having investment funds as shareholder activists is good because it goads companies into improving their corporate value.

"Many Japanese corporate managers still lack awareness about working in the interests of shareholders," Nemoto said. "Corporate executives should be more attentive to shareholders' interests, improve their earnings and reward the shareholders by raising dividends."

On Feb. 15, Steel Partners, which is already the largest shareholder in Sapporo with an 18.6 percent stake, proposed raising its stake to 66.6 percent in terms of voting rights.

Calling its buyout bid friendly, Steel Partners said it will launch a public tender offer if it gets the Sapporo board's approval. If the board rejects the proposal, however, Steel Partners is expected to launch a hostile takeover bid for the brewer.

Sapporo will probably decide whether to accept the buyout offer within two or three months. If a hostile bid is launched, the company said it may resort to takeover defense measures, such as issuing new stock to existing friendly shareholders to dilute the bidder's stake to make the planned acquisition more difficult.

Under its proposal, Steel Partners would offer 825 yen per share, which represents a premium of 4.56 percent over the closing price on Feb. 14 and 19.21 percent over the average closing price over the past three months.

The investment fund will need 150 billion yen if it is to proceed with the planned acquisition.

Following the announcement by Steel Partners, Sapporo's share price soared to a 10-year high of 960 yen on Feb. 19. The stock closed at 895 yen on Monday on the Tokyo Stock Exchange.

"Sapporo's share price has risen well above the offer price announced by Steel Partners, indicating that the (stock) market is expecting the emergence of a white knight" to launch a takeover bid with a higher offer, Shinsei's Matsumoto said.

Speculation is rife that Asahi Breweries Ltd., Kirin Brewery Co. or Suntory Ltd. will propose a capital tieup with Sapporo to stymie the hostile takeover, although none has publicly made the offer.

Sapporo is also reportedly seeking a tieup with one of its rivals.

"The difference in the percentage of the market share between Asahi and Kirin is so narrow. Taking in Sapporo would be big to them," Matsumoto said.

Masako Matsuoka, a spokeswoman for Steel Partners, said the investment fund's priority is to raise its stake in Sapporo but said it may sell the shares if another company launches a tender offer.

Many in Japan, including government officials, still think that investment funds such as Steel Partners are merely trying to exploit companies for their own profit.

Last week, Minister of Economy, Trade and Industry Akira Amari said Steel Partners' past attempts to acquire other companies in Japan suggests that the investment fund is focused on pushing up stock prices with little attention paid to raising a targeted company's corporate value.

However, Matsuoka denied such a view.

"Steel Partners is convinced that (Sapporo's) corporate value has the potential for growth," she said. "Selling the stake (in Sapporo) could be one of the options, but the (investment fund's) proposal is not based on that scenario."

Steel Partners began investment activities in Japan in 2002 and is now reported to be a major shareholder in nearly 30 companies, including confectioner Ezaki Glico Co. and wig maker Aderans Co.

The U.S. investment fund first drew attention in Japan when it launched a takeover bid in 2003 to acquire Yushiro Chemical Industry Ltd. and fabric dyeing company Sotoh Corp.

Although the tender offer for both companies failed, Steel Partners reportedly earned huge profits as the two firms increased dividend payments to raise their stock prices in an effort to avoid being taken over.

Matsumoto of Shinsei Securities said even if Steel Partners' takeover attempt fails and Sapporo keeps its management independence, Sapporo will continue to be exposed to the danger of another takeover attempt as long as the investment fund keeps its stake in the brewer.

Hirokazu Maezawa, a senior economist at the Japan Center for Economic Research, said investment funds target struggling companies with growth potential.

"Companies will have to work hard to better utilize their assets that will result in driving the share prices higher," Maezawa said.

To avoid being a takeover target, he said: "It all comes down to improving corporate value."

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