POLITENESS OUT,JAPAN’S HOSTILE TAKOVER

[Anonymous]

Politeness Out, Hostility In As Takeover Roils
Japan

TOKYO – It has happened before in
the United States: a fast-growing Internet start-up sets its sights on an
old-line media company,
and, in the end, gets it. That was the AOL takeover of
Time Warner in 2000.

Until now, though, something like that seemed unlikely in
Japan, where only a handful of hostile takeovers have been attempted. But a
court ruling on Wednesday set the stage for a 32-year-old entrepreneur, Takafumi
Horie, and his Internet company, Livedoor, to gain a majority stake in Nippon
Broadcasting System Inc., a 50-year-old radio broadcaster.

In addition, Mr. Horie’s company, which offers Internet
services and operates a Web portal similar to Yahoo, has a chance to gain
significant influence over the management of Nippon’s larger affiliate, Fuji
Television Network, the core company in one of Japan’s largest media groups.

Because the contentious battle for control of Nippon, which
began last month when Livedoor announced that it had bought a controlling stake
in the broadcaster, is a rarity for Japan, the clash is being followed with a
media blitz befitting a celebrity murder trial. The spike-haired Mr. Horie, who
prefers T-shirts and khakis, is being portrayed as the representative of a
young, more Westernized Japan taking on the country’s clubby corporate
leaders.

“This is a young Japanese who has got a vision, and he’s
got the guts,” said Jesper Koll, chief economist for Merrill Lynch in Tokyo.
“The Japanese are no longer afraid to take on their own elite.”

The battle also highlights the shift in Japan from what is
known as stakeholder capitalism, under which the interests of a company’s
employees, business partners or managers were often given higher priority than
increasing the company’s bottom line. Taking its place is an increasingly
Western approach in which companies are under pressure to think first about
their shareholders.

The ruling on Wednesday by the Tokyo High Court blocked a
planned move by Nippon to transfer a majority stake in itself to Fuji TV by
issuing share warrants to the television company. Fuji would then have been able
to convert the warrants into new shares in Nippon, potentially more than
doubling the number of outstanding shares in the radio company. That would have
greatly diluted the holdings of Livedoor and other current shareholders.

But the High Court, upholding a lower court, said that the
only purpose of the sale was to keep Nippon under the control of its current
management and that the sale, therefore, did not have any strategic value.

“It’s regrettable, really regrettable,” the president of
Nippon, Akinobu Kamebuchi, said after the ruling. “We were sure justice would be
on our side but that was not accepted. It’s really too bad.”

He added that Nippon would scrap the warrant sale and was
now evaluating what to do next. It could appeal the decision to the Supreme
Court.

The ruling clears the way for Livedoor, with a market
capitalization of 236 billion yen, or $2.2 billion, to take over management of
Nippon, with a market cap of 206 billion yen, or $1.9 billion, later this year.
Livedoor had a 49.78 percent stake in Nippon Broadcasting as of last Thursday
and was expected to be able accumulate a majority stake in time to elect its own
directors to the broadcaster’s board at the next shareholder meeting in
June.

Livedoor raised the money it needed to buy the Nippon stock
with a sale of 80 billion yen (about $750 million) in bonds, arranged by Lehman
Brothers. The bonds would then be convertible to Livedoor stock after the
purchase.

“We want to work now to raise the value of Nippon
Broadcasting and its group companies,” Mr. Horie said after learning of the
court’s decision.

Mr. Horie has said he wants the radio broadcaster so he can
advertise on its programs and draw listeners to his Internet sites and services.
He also said he believed that traditional media and the Internet would
inevitably become more closely integrated and he wanted to be at the forefront
of the change in Japan.

“I tried to do business with broadcasters over the last
five years but they are too slow to make decisions,” Mr. Horie said in a speech
this month. “We have to speed up this process. Of course, everyone would prefer
a friendly approach but I felt we don’t have time for that friendly
approach.”

Gaining control of Nippon could also give Livedoor a strong
say in the boardroom of Fuji TV, Japan’s largest private television network,
because Nippon is Fuji’s largest shareholder, with a 22.5 percent stake.

Media reports have said Mr. Horie has set his sights on
increasing his stake in Fuji even further and the network has been beefing up
its defenses against a takeover attempt.

This week, Fuji said it was prepared to issue up to 50
billion yen in new shares to fend off an unwanted bidder. The company also
announced that it would raise its fiscal year-end dividend to 5,000 yen a share
from the previously announced 1,200 yen, giving shareholders a strong incentive
to hang on to their stocks.

But a Livedoor executive suggested Wednesday that the
company would take a more conciliatory approach toward Fuji TV than it had in
its pursuit of Nippon. Livedoor does not intend to raise its stake in Fuji
without the approval of that company’s management, Livedoor’s senior vice
president, Fumito Kumagai, said Wednesday, according to a company spokesman,
Koichiro Ohta.

Mr. Horie, a college dropout, built Livedoor into one of
the country’s best-known Internet companies by combining a portal site with
online brokerage and banking and a host of other Internet services. The company
posted a profit of 3.58 billion yen for the year ended Sept. 30 on sales of
30.87 billion yen. By that measure, the company is still a long way behind its
top rival, the Yahoo Japan Corporation, which had sales of 75.78 billion yen in
its most recent fiscal year, which ended March 31, 2004.

Aside from shaking up corporate Japan, Mr. Horie’s takeover
bid also promises to change the landscape for mergers and acquisitions in
Japan.

Although Mr. Horie is Japanese, his aggressive tactics and
early success have unleashed fears that a horde of foreign companies might try
to buy up Japanese firms using his methods as a model. Although analysts say a
wave of such acquisitions is unlikely, ruling-party politicians are nonetheless
threatening to delay long-anticipated legal changes that would have allowed
foreign companies to buy Japanese companies through stock swaps.

On the other hand, many analysts and lawyers say that the
attention the battle has generated could lead to a more thorough overhaul of
laws governing takeovers that would benefit the industry in the long run.

“This is a very good event to educate Japanese people,”
said Nobutoshi Yamanouchi, a lawyer in the Tokyo office of the American law firm
of Jones Day. “Some people don’t like to see Japan transforming into a
Western-style society but in my opinion in order to have international or global
competitiveness, this step is necessary.”

Many ordinary Japanese have also applauded Mr. Horie’s
effort even if they find his aggressive style somewhat distasteful. Polls show
that he has broad support for his takeover attempt among both younger and older
Japanese.

“I like what’s happening,” said Hitashi Suzuki, a
35-year-old employee of a construction company in Tokyo. “It is very modern and
suits the time we live in. I wouldn’t say I support Mr. Horie personally, but I
think it is good that he fights for what he wants.“

[Author]

March 31, 2005 at 10:09 AM