Feb. 8, 2005, may be remembered as a significant day in Japanese business. It was the day one of the market’s young Turks launched a controversial and “un-Japanese” takeover bid.
Takafumi Horie, a 32-year-old Internet mogul, stepped into the limelight last year with a bid to enter the professional baseball business. His attempt ended in failure.
But he came back last week, trying to take control of one of the country’s biggest established media groups.
Horie’s fast-growing Internet firm, Livedoor Co., acquired about 9.7 million shares, or 30 percent, of Nippon Broadcasting System Inc. through off-hours trading Feb. 8, boosting its stake in the radio broadcaster to roughly 38 percent in terms of voting rights.
Without informing its stakeholders or those of the Fujisankei Communications Group, Livedoor became the top shareholder of the Tokyo-based radio broadcaster.
Livedoor, whose sales last year came to 30 billion yen, sold 80 billion yen worth of convertible bonds to Lehman Brothers to help fund the hostile acquisition.
The investment in Nippon Broadcasting has caused a big stir as it is a direct challenge to Fuji Television Network Inc. — Fujisankei’s core unit — which is in the midst of an effort to turn the AM radio broadcaster into a subsidiary.
At the time of the Livedoor acquisition, Fuji TV had a 12.4 percent stake in Nippon Broadcasting.
Fuji TV announced Jan. 17 it would complete a takeover bid of Nippon Broadcasting to fix a twisted cross-shareholding structure, under which the smaller radio station is the biggest shareholder in the much larger national TV network.
Rocking corporate boat
“I don’t know what’s going on because I have never met him or spoken to him,” Fuji TV Chairman Hisashi Hieda said of Horie and the surprise takeover bid. “I wonder if this sort of thing is called American-style. I don’t know it because I’m Japanese.”
Hieda has been publicly criticizing Horie, who is half his age, ever since, claiming that Horie’s go-it-alone business style is unfair and does not fit with Japan’s traditional business culture.
Horie has also been attacked by other business leaders, including the chairman of the Japan Business Federation (Nippon Keidanren), the nation’s most influential business lobby.
“He has been criticized by people in political and business circles for having done something morally wrong, because it is the worst thing in Japanese society to think that if you have money, you can do anything,” claimed Hiroshi Okuda, head of the federation and chairman of Toyota Motor Corp.
But complaints from some big names in business and political circles have not fazed Horie — nicknamed Horiemon for his resemblance to the pudgy animation character Doraemon.
The dot-commer has responded to criticism by saying his firm’s acquisition bid is legal under the Securities and Exchange Law.
Horie said the company carried out the off-hours trade after checking with the Financial Services Agency that the transaction was legal.
Horie has said he wants to form a win-win business partnership with Fujisankei and has no intention of damaging the group’s business or media activities, nor does he want to make a quick profit by selling the radio broadcaster’s shares at higher prices.
Free-market or unethical?
Experts are divided over the way Livedoor boosted its stake in the radio broadcaster. Some say Livedoor’s move is in line with free-market principles, while others condemn Livedoor for not using a transparent method, such as a tender offer.
By law, a firm seeking to buy more than one-third of a listed company’s outstanding stock in off-market trading is required to carry out a tender offer to ensure transparency.
This requirement did not apply in Livedoor’s case as it used the Tokyo Stock Exchange’s off-hours trading system, which has been treated by authorities as part of regular market transactions.
The chorus of complaints from business leaders that the behind-the-scenes trade by Livedoor will erode the TSE’s credibility has prompted the government to seek changes to the Securities and Exchange Law.
The heated takeover battle has also pushed the government to propose revisions to corporate law to protect Japanese firms from hostile takeovers.
“The major achievement that came out of the battle is the discovery of flaws in Japanese regulations pertaining to corporate acquisitions,” said Nobumichi Hattori, a visiting associate professor specializing in merger and acquisition deals at Hitotsubashi University.
“The problem is that financial authorities had known about inadequacies, but they did not move up until now,” said Hattori, a former managing director at Goldman Sachs.
Hattori said Horie should accept the criticism that he bought the large volume of radio broadcaster shares in a secretive manner.
Many experts suspect Livedoor had made a deal earlier to purchase the shares, despite rules stating that, in principle, off-floor trading must be anonymous.
Like it or not, Japan may be in for many more mergers and acquisitions — friendly or otherwise.
Once the revised corporation law comes into effect in April 2006, the number of cross-border mergers and acquisitions is expected to increase sharply as foreign companies will be able to take control of domestic firms through equity swaps.
Fuji TV goes on offensive
After Livedoor’s announcement that it was Nippon Broadcasting’s largest shareholder, Fuji TV lowered its acquisition target to 25 percent Feb. 10, trying to prevent Livedoor from indirectly wielding power over the TV broadcaster.
Under the Commercial Code, if Fuji TV gets a stake of at least 25 percent in Nippon Broadcasting, the radio broadcaster will be unable to exercise its voting rights in Fuji TV.
Horie has said he will buy Nippon Broadcasting’s shares until Livedoor’s voting rights reach at least 50 percent, so that it can make the broadcaster its subsidiary.
The first stage of the tug-of-war between Livedoor and Fuji TV will continue at least until March 7, the new deadline for Fuji TV’s tender offer bid.
The two sides have not backed away from buying more Nippon Broadcasting shares, with Livedoor raising its stake in the radio broadcaster to more than 40 percent in terms of voting rights, while Fuji TV’s Hieda has expressed confidence it will succeed in securing a stake of more than 25 percent.
To protect itself against Livedoor’s takeover bid, Nippon Broadcasting on Wednesday said it will issue share warrants for about 47 million new shares to Fuji TV.
The equity warrants will give Fuji TV the exclusive right to buy new shares between March 25 and June 24.
Since all new shares will come from warrants, Fuji TV will be able to make Nippon Broadcasting its subsidiary, regardless of the results of the TV broadcaster’s ongoing takeover bid.
M&A Consulting Inc., which owned about 19 percent of Nippon Broadcasting as of January, may also influence the battle.
The investment fund is headed by shareholder activist Yoshiaki Murakami, a former trade ministry official who is closely connected to Horie. Murakami may decide to sell his shares to Livedoor.
The catlike robot Doraemon has a pocket from which he can take out miraculous tools, including a “dokodemo” door that allows people to travel anywhere they want.
Everyone is watching to see whether Horiemon has his own dokodemo door to lead Livedoor to victory in this highly public market battle.
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