Seibu’s shareholders nix Cerberus directors

Kyodo, Bloomberg

Shareholders of Seibu Holdings Inc. on Tuesday voted down a slate of directors proposed by its largest stakeholder, Cerberus Capital Management LP, apparently to exert more influence over a plan to relist the firm.

The U.S. private equity fund recommended eight people, including former U.S. Vice President Dan Quayle, for the board, against four members, including critic Eiko Oya, proposed by the management of the railway and hotel operator.

Cerberus, which held a 32.44 percent stake in Seibu as of the end of March, failed to secure a majority of votes needed to have its proposal approved after abandoning waging a proxy fight.

“We will work together companywide for an early listing,” Seibu President Takashi Goto told the meeting. “We’d like to call on Cerberus for talks.”

Goto confirmed during the meeting his opposition to the Cerberus plan.

Through a tender offer from March to May, the U.S. fund raised its stake to 35.48 percent, enough to allow it to veto major board proposals but only from the next shareholders’ meeting, as voting rights are allocated based on holdings as of March 31.

Cerberus helped the holding company, set up in 2006, of Seibu Railway Co. rebuild its business after Seibu Railway was delisted from the Tokyo Stock Exchange in 2004 for falsifying financial statements.

The two companies, however, have been at odds over the plan to relist on the TSE, particularly over the offering price and timing.

Seibu has been hostile to a series of moves by Cerberus, saying the U.S. company is trying to take effective control of the Japanese company.

The shareholders’ meeting in Tokorozawa, Saitama Prefecture, gathered a record number of more than 900 attendees, more than twice the number the previous year.

“Overseas funds that invest in Japan usually find things don’t go that well,” Mitsushige Akino, who oversees the equivalent of about $500 million in assets at Ichiyoshi Investment Management Co. “Shareholders are seen as just one of several stakeholders, including banks and employees.”

Stephen A. Feinberg’s fund has spent about ¥120 billion acquiring its stake in Seibu, which was delisted from TSE for breaking exchange rules by misstating stakes. In comparison, Cerberus oversees more than $20 billion in investments and spent $7.4 billion to buy an 80.1 percent stake in Chrysler LLC in 2007.

In addition to Quayle, chairman of Cerberus Global Investments, and John Snow, former U.S. Treasury Secretary, Cerberus has recommended directors including Hirofumi Gomi, a former commissioner of the Financial Services Agency; Yuji Shirakawa, former chairman of Citigroup Global Markets Japan Inc.; and Louis J. Forster, a senior managing director at Cerberus.

Seibu management has submitted its own list of candidates for the board who will be more profitable for the company, Shuhei Akasaka, a spokesman for the company, said last week.

That list and Seibu’s current business strategy will be backed by Yoshiaki Tsutsumi, who holds 36 percent of Seibu’s second-largest shareholder, NW Corp. The investor amassed a $16 billion personal fortune while at the helm of Seibu and was named the world’s richest man by Forbes magazine in 1990. In 2005, he was convicted of violating securities trading laws and handed a suspended sentence.

Seibu lowered earnings forecasts on March 26, five days before the end of the fiscal year, cutting its estimate for operating profit before interest, taxes, depreciation and amortization by ¥3 billion to ¥78.1 billion, from at least 81.3 billion. Two months later, its reported earnings beat that prediction by ¥2.1 billion.

Prince Hotels Inc., owned by Seibu, runs a chain of 50 hotels in Japan and around the world, including the Hawaii Prince Hotel Waikiki. Seibu got ¥155 billion, about a third of its revenue of ¥459 billion, from its hotel and leisure businesses in the year that ended in March, according to the company.

  • JS

    It is amazing to see how little understanding even sophisticated investors like Ceberus have of the Japanese way of thinking. Anyone who has lived and worked in Japan can see obvious signs everywhere of the deep contempt and disdain which the Japanese establishment (businesses, courts, government and the people) harbor against foreigners and foreign ideas.

    As such, it would have been inconceivable to see how a large and traditional Japanese company like Seibu could have listened in good faith to outsiders like Cerberus. What foreigners don’t seem to understand is that the Japanese are not interested in any collaboration of any sort with the non-Japanese. They have a deeply ingrained “us” vs. “them” mentality, and there is no room in the Japanese “us” for any foreign people or foreign ideas.

    What makes this worse is when the Japanese “handlers” and the so-called Western “experts” on Japan try to portray these types of problems as unique to the Cerberus-Seibu situation. Make no mistake, this is the rule in Japan, not the exception. The sooner foreigners understand the true nature of Japan, the better off they’ll be.

    Abenomics is a farce, pure and simple. Within the Japanese context, grand policies like this, that offer no substance, are often used as smoke-and-mirrors to mask and distract from the real stealth agenda (which in this case is Abe’s nationalism and right-wing agenda). So, it is naive for Cerebus and other foreign investors to somehow believe that things will be different this time just because they saw Abe’s Dog and Pony Show on TV, or read about it in a newspaper. Abe would not know the meaning of globalization, liberalization, and opening up, if these hit him in the head. The same fate awaits the Daniel Loeb-Sony saga, where Third Point will be sorely disappointed. The only difference is that Hirai will be more diplomatic in his brush off of Loeb.

    Take it from an American who has lived and worked for many years in Japan (including holding senior positions within Japanese companies). Japan is not changing for the better, Japan is not opening up, Japan is not becoming less xenophobic and insular, Japan is not become more globalized, and Japan is not interested in interacting or having a dialogue with the rest of the world (the only exception being that it wants the one-way street of exporting its Toyota cars and Sony TV’s to the rest of the world to support its domestic economy).

    In other words, it is business-as-usual in Japan. It always has been and always will be. Sorry, but change is not coming.