Scandal-tainted Livedoor Co. is to be expelled from the Mothers market for startup firms Friday amid allegations it falsified its financial statements. But while the Internet firm is not leaving willingly, over the past year a number of companies have walked away from the stock market on their own after deciding that being listed is doing them more harm than good.
Last July, major apparel manufacturer World Co. surprised the market by announcing a management buyout plan that took the company private. World was formally delisted from the Tokyo Stock Exchange in November.
Masako Wakimoto, spokeswoman for Kobe-based World, said the company decided to delist to prevent interference from shareholders and analysts, whom she accused of being bent on winning short-term profits.
“For instance, we started selling our products at shopping centers in addition to department stores around 2000. But analysts responded negatively, saying that expanding the market was irrelevant,” Wakimoto said.
The analysts were wrong. World began turning profit a few years later and other apparel manufacturers followed suit, Wakimoto said.
“Some of our potential investment plans may not make a profit in the short term. If we had remained listed, we would have had to listen to the opinions of analysts and responded,” to prevent the company’s stock price from plunging, she said.
When a company wants to make drastic changes or investments in its business, its finances and stock price can take a temporary hit that makes it vulnerable to hostile takeovers, said Koichi Mizudome, managing partner at Roland Berger Ltd., a business consulting firm.
“So a company may choose to delist itself, go private and take substantial measures to change the company with the support of friendly investors. It gives an alternative for management. . . . Not a bad idea,” said Mizudome.
The decision of soft drink maker Pokka Corp. to delist was instructive. Last August, Pokka announced plans to go private through a management buyout, with financing provided by investment firm Advantage Partners Inc. It delisted in December.
Unlike World, which was profitable when it went private, Pokka was hoping to rebuild. It sought help from Advantage Partners.
Pokka posted a net loss of 13 million yen on sales of 48.95 billion yen in the first half of fiscal 2005 through September. Its pretax profit of 512 million yen was down 69.8 percent from the same period in 2004.
“When we think of the company’s future, we cannot grow by leaps and bounds if we continue to do what we had been doing,” said Yoshiaki Inoue, spokesman for Pokka. “So we sought help from the investment firm, limited shareholder membership and decided to take bold actions.”
Inoue said that the company is now able to make quicker decisions and that there is a sense of seriousness among company executives because Advantage Partners officials participate in Pokka’s management.
But when Advantage Partners sells the company in the next five to seven years, a time frame stipulated in its investment contract, Pokka may decide to relist, Inoue said.
Experts say more companies are likely to delist while they restructure.
Yuzo Fujishima, senior analyst in the strategic management advisory division at Daiwa Institute of Research, said an increasing number of investment firms, banks and brokerages are looking for companies to invest in, giving companies alternatives for raising capital.
But Fujishima warns there is always a risk that management may run amok when firms go private because of the limited number of shareholders looking over its shoulder.
“If they are listed, they are at least be obliged to make a profit for shareholders,” but with unlisted companies, it is possible the firm will lack corporate governance standards, or the ability to monitor the management, Fujishima said.
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