Fuji Television Network Inc. — the nation’s largest private broadcaster — is putting up a fierce defense against a takeover attempt by Internet firm Livedoor Co.

Softbank Corp. affiliate Softbank Investment Corp. has entered the fray, becoming Fuji TV’s biggest shareholder by borrowing 353,704 Fuji TV shares from Nippon Broadcasting System Inc., a small radio company in the Fuji TV-dominated Fujisankei Communications Group.

Livedoor is reportedly considering a court challenge to the share loan.

Here is the background on the issue.

How does the share-loan deal affect Livedoor’s takeover attempt over Fuji TV?

It eliminates any direct influence Livedoor might have been able to exercise over Fuji TV through control of NBS.

With a majority stake in NBS, Livedoor can gain control of the radio company by appointing directors at a shareholders meeting in June. NBS was previously the top shareholder in Fuji TV, with a 22.5 percent stake. On Thursday, it transferred more than half of those shares, giving Softbank Investment a 14.67 percent stake in terms of voting rights. Coupled with the NBS transfer of 220,000 shares in Fuji TV to Daiwa Securities SMBC last month, NBS now has no voting rights in Fuji TV.

But didn’t NBS lose its voting rights in Fuji TV when Fuji TV bought 36.5 percent of NBS shares?

Yes. Under the Commercial Code, NBS cannot exercise voting rights with its 22.5 percent in Fuji TV because Fuji TV owns more than 25 percent of NBS. But the voting rights can still be transferred in a lease, which is how Softbank Investment now has voting rights in Fuji TV.

How does borrowing shares work?

All it takes is a lease contract. The borrower pays a fee, and returns the equivalent number of stocks after an agreed period. Both the fee and the loan period are negotiable. In the meantime, the borrower is entitled to any dividends or voting rights on the leased stocks.

Can Softbank Investment sell the stocks?

Yes, as long as it returns the equivalent stocks to the lender. It can even sell the stocks to Livedoor, although NBS says this is “unlikely,” as NBS, Fuji TV and Softbank Investment have agreed to kick off a venture capital fund together.

Can Livedoor stop the share lease?

Not immediately. There is nothing illegal about putting existing shares on loan. But if Livedoor can prove NBS management signed an agreement that intentionally undermined shareholders’ interests, then the contract can be voided.

Why is that?

A company is owned by its shareholders so company directors are legally bound to look out for shareholders’ interests. The lease is clearly beneficial to Fuji TV’s defense against Livedoor, but NBS has yet to explain to its own shareholders — including Livedoor — how the move is beneficial to them. If the lease compromises the firm, shareholders can file a lawsuit demanding compensation.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.