RAILWAY MERGER NOW ON FAST TRACK

Murakami fund to sell Hanshin stake to Hankyu

by Tetsushi Kajimoto

The investment fund led by Yoshiaki Murakami announced Monday that it is selling its shares in Hanshin Electric Railway Co., paving the way for Hankyu Holdings Inc.’s takeover bid for Hanshin.

Murakami, speaking at a televised news conference at the Tokyo Stock Exchange, said his fund would cooperate with Hankyu’s offer to facilitate the first postwar merger of two private railways. Hankyu Holdings is the parent firm of railway operator Hankyu Corp.

Murakami went on to say the merger of the two Kansai-based railways was an option proposed by the fund and said it expects the corporate value and shareholder value of both firms to be enhanced through the tieup.

The announcement by Hanshin’s largest shareholder came in the morning when Murakami, 46, a former trade ministry bureaucrat, admitted to insider trading at the hastily arranged news conference in connection with purchases of Nippon Broadcasting System Inc. shares from late 2004 to early 2005.

He was arrested later in the day for alleged securities law violations.

The announcement makes it virtually certain Hankyu’s bid to purchase at least 45 percent of Hanshin’s outstanding shares by June 19 will succeed.

Following the announcement, both Hankyu and Hanshin expressed relief, saying they will push ahead with their merger talks.

“Our company considers it desirable for the buyout bid to move toward success, and (we) aim to integrate management with Hanshin by continuing the bid in accordance with our fixed policy,” Hankyu said in a press statement.

Hanshin issued a similar statement separately, welcoming Murakami’s announcement that the fund has dropped its demand that Hanshin accept nine people recommended by the fund for its 16-member board.

Hanshin had earlier threatened to have its board members resign on mass and paralyze the company to thwart any effort by the fund to place Murakami and his allies on the board.

Before the announcement by the Murakami fund, the market had been waiting to see what the fund would do with its 47 percent stake in Hanshin in response to the buyout bid by rival railway Hankyu Corp.

The fund pullout puts an end to a bitter battle between Hanshin and the fund that has raged since late September, when a financial report showed the fund had acquired major stakes in Hanshin Electric Railway Co. and Hanshin Department Store Co.

A successful buyout would make Hanshin a wholly owned subsidiary of Hankyu through a stock swap on Oct. 1, pending approval by the two companies’ general shareholders’ meetings scheduled for June 29.

While Hankyu is expected to benefit from the merger with Hanshin, which holds many prime commercial properties, in terms of both its railway and real estate business, it will be taking on an additional burden to finance the buyout, on top of its consolidated interest-bearing debts, currently worth some 900 billion yen.

A successful tender will cost Hankyu at least 176.4 billion yen and could reach 392.1 billion yen if it acquires all 421 million or so of Hanshin’s outstanding shares.

More Hanshin shareholders may respond to Hankyu’s offer of 930 yen per share, as the troubles at the Murakami fund may put downward pressure on Hanshin shares, which closed at 931 yen Monday, unchanged from its Friday close.