NAGOYA (Kyodo) A year ago at Pokka Corp.’s headquarters, then Managing Director Masatoshi Hori asked senior executives if a management buyout was possible.
After a brief silence, one spoke up: “This company will not change unless we do it. So let’s do it.”
About three months later, on Aug. 22, 2005, the Nagoya-based beverage maker, which was listed on the first section of the Tokyo Stock exchange, announced the management buyout and began buying back stock from shareholders. By December, Pokka had ended its 20-year history as a listed company.
MBOs are often aimed at allowing management to change the way a company does business, while removing the threat of hostile takeovers and pressure from shareholders. They are a type of voluntary exit from the market, unlike the case of Livedoor Co., the Internet services firm that was recently delisted because of suspected financial misdeeds.
Pokka’s decision to go private illustrates the changing relationship between Japanese firms and their bankers.
In the traditional “relationship banking” system, banks provide long-term financial backing to a company, and offer management assistance if necessary.
Companies’ “main banks” are usually their largest creditors. They typically influence management through cross-shareholdings and by sending executives to sit on company boards. By giving firms access to a stable supply of capital, the relationship banking system has been lauded in the past for supporting the country’s development.
But in recent years these cozy ties have come under attack. Banks were accused of allowing the bad debts of their clients to balloon, thus taking the pressure off poorly managed firms and storing up trouble for the future.
The relationship between banks and companies is breaking down and investment funds are stepping into the vacuum. The 23.5 billion yen that Pokka needed for the share buyback was provided by investment fund Advantage Partners LLP.
Advantage has also sent three part-time executives to Pokka, while nearly all of 20 employees from former Tokai Bank, which is now part of Mitsubishi Tokyo UFJ Bank, Pokka’s main bank, have resigned from Pokka’s board.
Hori, who took over as president of Pokka in December, is unapologetic.
“Importance will be placed not on past performance but on the ability to make proposals for the future and speedy decisions,” he said.
Banks themselves also want a piece of the action.
“Megabanks are now clashing with each other head-on,” said Koji Sasayama, deputy director of the leveraged finance business department at Mizuho Corporate Bank and a man at the center of the competition to offer buyout loans.
Instead of providing cheap loans to potentially risky corporate clients, banks are increasingly providing money for buyouts, many of which are led by overseas funds.
In 2003, Ripplewood Holdings bought Japan Telecom Co., and in 2004, the Carlyle Group bought DDI Pocket (now Willcom Inc.). With buyouts of Japanese firms by investment funds becoming more common, many foreign-affiliated banks have been creating teams to handle this lucrative business.
“Relations with companies are becoming quite businesslike, with proper checking of whether deals are risky or profitable,” said Sasayama, who has been working in buyout financing in the U.S. since the mid-1990s.
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