A long-running feud for control of a Japanese provider of home-cooked meals has spilled out of the boardroom and into the kitchen.
Colowide Co., which owns multiple restaurant chains in Japan, is seeking to take control of Ootoya Holdings, a well-known operator of cheap and convenient eateries that serve what it describes as "mom’s food.” Having failed in an earlier bid to install its preferred slate of directors, Colowide earlier this month launched a tender offer aimed at boosting its share in Ootoya to a majority and give it control of the company.
Ootoya on Monday formalized its opposition to the offer, setting up a proxy fight for the future of the franchise at a time when the restaurant business in Japan, as in much of the world, is struggling to stay afloat due to the coronavirus pandemic. Restaurants have had to cut back on hours, staffing and capacity to comply with social-distancing measures, eroding their profitability.
At its heart of the struggle in Japan is a dispute over the place of kitchens: Ootoya makes its traditional Japanese meals on-site in each restaurant, and argues this is crucial to its business. Colowide wants to modernize the chain and integrate into its network of central kitchens, hubs that can serve multiple restaurants at once.
The struggle also highlights how hostile takeovers, once frowned upon in Japan, are increasingly becoming an option for management feeling ever-greater pressure from shareholders to boost long-term sluggish performance.
The battle has its roots in the sudden death in 2015 of Hisami Mitsumori, the man who built the Ootoya brand. Following a reported clash with Chief Executive Officer Kenichi Kubota, Mitsumori’s son Tomohito left the company, and he and his mother eventually sold their sizable stakes in Ootoya to Colowide in 2019. Kubota himself is also a cousin of Mitsumori.
Colowide first tried to install its preferred slate of directors, which included Tomohito Mitsumori, only for shareholders to roundly reject the proposal last month. Colowide is now offering ¥3,081 per share to take its stake above 51 percent. That’s a 46 percent premium to the closing price before the offer, with shares closing at ¥2,970 on Tuesday.
Ootoya’s management has hit back, accusing Colowide of bungling past takeovers, including that of Kappa Sushi, acquired in 2014 and which Ootoya says has trailed rival sushi outlets. In its statement of opposition to the tender offer, it warned shareholders that a successful Colowide bid would put Ootoya’s business in jeopardy. A group of more than 400 restaurant employees on Friday said they opposed the deal.
"We do not view Colowide as being in good shape to drive a turnaround of Ootoya,” Mio Kato, an analyst at LightStream Research who publishes on Smartkarma, wrote in a note on July 9. "This looks to be a potential acquisition of a struggling company by a financially weak and in our view, also struggling company, during a crisis period for their industry.”
Once considered beyond the pale in Japan, hostile takeover bids have started to become de rigueur as shareholders increase pressure on management to improve their performance. Earlier this year, Maeda Corp. completed a hostile takeover of road paving company Maeda Road Construction Co., a company with which it had ties going back more than 50 years. Hoya Corp. last year attempted to acquire Toshiba Corp. affiliate NuFlare Technology Inc. in an unsolicited bid, despite being partners with Toshiba on a memory venture.
The most relevant example could well be that in 2019 of trading house Itochu Corp., which undertook a hostile bid of Descente Ltd. with the intention of replacing the sportswear maker’s management — something it swiftly carried out when the bid was completed.
"I have no intention of ever changing our style of cooking in-store,” Kubota told Nikkei Business magazine in an interview in May, before the bid had been finalized. "A tender offer is not illegal, but would be in extremely bad faith.”
One intriguing complication is Ootoya’s retail-heavy shareholder base. Most of Ootoya’s shares are in the hands of individual investors, with many holding the stock long term in order to claim "yutai” shareholder gifts, which include free meals and rice, and it’s unclear where their loyalties will now lie. Colowide’s tender offer runs until Aug. 25.