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Cerberus impasse with Seibu appears set to drag on

Railway management won't budge on relisting plan; U.S. fund may be eyeing new takeover bid

by Hiroko Nakata

Staff Writer

How the public battle between U.S. private equity fund Cerberus Capital Management L.P. and Seibu Holdings Inc. over management of the struggling railway and hotel operator remains unclear even after the Seibu shareholders’ meeting Tuesday.

Experts and industry insiders say that if talks between Seibu and Cerberus go nowhere, the capital fund will likely either start another unsolicited bid to gain a majority stake or find another investor to buy its stake.

In either case, it isn’t likely that a breakthrough will come anytime soon, they said.

“Their tug of war will go on,” said Daisuke Nakano, who is in charge of the transportation sector at German consulting firm Roland Berger.

The battle is also seen as the latest test of whether Japan Inc. can be open to foreign capital, at a time when “Abenomics” is trying to lure overseas money as an economic driving force.

On Tuesday, Seibu’s shareholders voted down a list of directors proposed by Cerberus, which apparently wants to increase its influence over Seibu’s plan to relist on the Tokyo Stock Exchange.

The private fund, Seibu’s largest shareholder, recommended eight directors, including former U.S. Vice President Dan Quayle, former U.S. Treasury Secretary John Snow and Hirofumi Gomi, a former commissioner in the Financial Services Agency, against four members, including critic Eiko Oya, proposed by Seibu’s management.

Cerberus, which held a 32.44 percent stake in Seibu as of the end of March, failed to secure the votes it needed after deciding not to wage a proxy fight. But the U.S. fund raised its stake to 35.48 percent through a tender offer from March to May.

“We want to go ahead with negotiations (with Cerberus) openly and through a fair process,” Seibu President Takashi Goto told reporters after the shareholders’ meeting. Seibu said Thursday it would not exclude any topics in the talks.

Top-level discussions between the two sides have been stalled since last year. While both say they will continue to talk, prospects appear grim largely because they have been at odds over the relisting plan, especially over the price and timing.

Cerberus says Seibu must improve its corporate governance and earnings performance to get fair value for its shares before relisting.

Seibu has publicly accused the U.S. firm of proposing to sell off Seibu’s train lines and baseball team, which it argues would hurt the relisting. Cerberus has denied the accusations.

Even if Seibu wants to move forward with the relisting process, it would not be easy without the consent of Cerberus, as it owns more than a third of the company.

“The remaining option would be either they reach a compromise in their talks or Cerberus launches a hostile takeover bid again, if Seibu’s profitability does not improve,” Nakano of Roland Berger said.

An industry insider who declined to be named agreed that another takeover bid can’t be ruled out, but only when there are enough investors backing it.

A withdrawal by Cerberus appears unlikely for now because it would not benefit the U.S. firm, Nakano said.

“It will instead probably try to maximize Seibu’s corporate value,” he added.

The fund had injected more than ¥100 billion into Seibu as of 2007 after the Japanese firm was delisted from the TSE due to a scandal involving falsifying financial statements.

Cerberus said Wednesday that it is willing to continue talking with Seibu.

“We’ll continue to call on Seibu Holdings to have straightforward and sincere talks,” the U.S. fund said in statement. “At the same time, we, as a top shareholder, will make all kinds of proposals to Seibu Holdings that protect the rights and interests of all Seibu shareholders.”

Cerberus said it has “increasingly deeper worries and a sense of crisis” over whether Seibu’s earnings can improve as it has promised and achieve the return to the TSE.

Seibu lowered its earnings forecast March 26, five days before the end of the business year, cutting its estimate for a net profit by ¥5.9 billion to ¥12.4 billion. Two months later, it logged a ¥15.6 billion net profit, beating the estimate.