Japanese Corporates Reveal Attitudes to Hostile Acquisitions

"A bank is a place that will lend you money if you can prove that you don't need it."

Bob Hope (1903 - 2003)
Actor

In the midst of a contentious debate between a leading hedge fund activist and J-Power the electricity utility, a recent survey from a leading Japanese brokerage sheds new light on what Japan Inc. thinks about M&A.

The survey was conducted in May 2007 and polled 1,464 major listed companies of which 205 responded to the 28 questions.

There were certainly a lot of answers that support the view that Japanese management views any criticism, much less, from foreign activists with suspicion and resentment. Not surprisingly, the case that many activists make is readily dismissed by boards of directors and management that feels "threatened".

A total 59% of respondents consider that perceptions of an increasing number of hostile acquisitions are unfavorable and negative (but for whom?) while 62% were negative with regards to the role of investment funds (or hedge funds) although this was pretty close to the level of suspicion that is leveled at other corporations that alos engage in the practice!

Apparently, the increasing trend is not really permeating down to the corporate boardroom as a combined total of 84% of respondents saw little/no threat to date from hostile acquisitions. This supports the view that many large multi-strategy funds (like Ramius) based in Tokyo have been saying about the climate for some time - that there really is nothing really going on other than a few high profile M&A cases, and that Japan Inc. still is not open to ANY discussion when it comes to shareholder value.

It seems that in terms of defensive tactics Japanese coporates prefer to rely on the introduction of a "poison pill", to strengthen cross-shareholdings, and to increase long-term shareholders who approve the current management. In terms of the type of "poison pill" a majority tend to favor the pre-warning type and they execute this typically through an ordinary resolution at a shareholder's meeting, and in some cases this may mean a change in the Articles of Incorporation of the firm.

Interestingly, for those firms that do take up an aggressive defensive tactic and have introduced a poison pill, there is often a special committee with independent members voted on the board. These members are typically between 3-4 with attributes at the sub-committee level of outside auditors and other outsiders. Other interesting facts include that these people rarely meet, are not considered "active". Many companies often introduce a sunset provision of 2-3 years at board meetings.

Regretably, the legal system, the media and the authorities are to blame for this apparent paralysis. A good dose of M&A activity is needed to bring corporate Japan kicking and screaming into the future. It is needed as one component to bring "life" back into the unlisted and listed company markets in Japan. Mahalo.