Internet entrepreneur Takafumi Horie has sent shock waves reverberating through the Japanese media industry with his hostile takeover bid for Nippon Broadcasting Co., a member of the Fujisankei media conglomerate.
Horie, president of Livedoor Co., threatens to eventually take over the tightknit Fujisankei group, which comprises a radio-TV broadcaster, newspapers and other publications. Horie’s moves have heightened a sense of crisis in the business community and prompted the government to draft legislation for establishing rules for corporate takeovers.
Livedoor drew public attention last year when it offered to buy the Japanese professional baseball team Kintetsu Buffaloes — while it was negotiating a merger with the Orix BlueWave — and join it with the Pacific League. Livedoor proposed some unique ideas such as issuing joint-ownership shares to residents of the home city and giving players stock options. Kintetsu, however, was skeptical of Livedoor’s credibility and chose to merge with Orix as planned.
Subsequently a strike by players opposed to the planned shift from two leagues to one league gave Livedoor another chance to join professional baseball, but Rakuten, another Internet company, beat out Livedoor for a new team franchise, despite entering the competition late.
That episode taught Livedoor a bitter lesson about the difficulty a newcomer has in trying to enter an established market. The lesson presumably prompted Livedoor to use aggressive tactics in its attempt to take over Fujisankei.
The media industry is full of restrictions and old-fashioned customs, as is the professional baseball world. In particular, broadcast companies are bound by the licensing system and affiliations with newspaper companies. For the past several decades, there has been little change in their stock ownership.
To avoid intervention from the outside, all Japanese newspaper companies are privately owned, mostly by founders’ families and employee groups. Newspapers own, or at least share, the largest stockholdings in affiliated broadcasters.
Fuji Television, the flagship company of the Fujisankei media group, is unusual. The broadcaster owns 40.3 percent of the Sankei Shimbun and thus has a major influence on the newspaper. The newspaper is known for its conservative editorial policy, and it remains to be seen whether Horie would try to change that policy should he take over the group.
In an interview published in the weekly magazine AERA (Feb. 21), Horie criticized the newspaper for its conservative opinion-page articles and suggested that the newspaper strengthen its entertainment section. It is clear that Horie has ambitions on broadcasting and newspaper management.
In a Feb. 16 editorial, the Sankei Shimbun had said it was shocked that Horie seemed to value entertainment over news and commentaries in the media. The comment contrasted sharply with the newspaper’s Oct. 19 editorial, which welcomed Internet companies’ plans to enter professional baseball as a hopeful sign that new management models would be introduced.
Newspapers in general face financial difficulties as subscriptions level off due to the lure of TV broadcasters and the Internet. The economic slowdown makes it difficult for them to raise prices. Horie’s foray into the news industry should be welcome, since he seeks to reactivate it by combining the best of the Internet with traditional media. Management and newspaper readers must decide whether news and commentary deserve a higher priority than entertainment.
The Japanese business community has showed signs of an allergy to hostile takeovers. Many executives believe Livedoor is making reckless takeover attempts without regard for the public nature of broadcasters. Some lawmakers of the governing Liberal Democratic Party contend that hostile takeovers do not sit well with Japan’s corporate culture. Such views are anachronistic in view of the moves toward the globalization of economies.
Following the Livedoor affair, the government decided to delay for one year the implementation of a new regulation in corporate law that would lift restrictions on the use of foreign stock in transactions involving corporate mergers.
There are also moves, under the radio law, to prevent foreign companies from funding Japanese investors and, as a result, gaining indirect control of Japanese radio broadcasters. The business community wants the option of deploying a U.S.-style “poison pill” tactic to make a hostile takeover prohibitively expensive.
Japanese companies have successfully protected themselves from takeovers through cross-shareholding arrangements. However, the widespread introduction of the current-value accounting system has made the practice less common, facilitating takeovers.
Establishing takeover rules is fine, since they have been virtually nonexistent, but they should not be used to protect incompetent management. Kakutaro Kitashiro, chairman of the Japan Association of Corporate Executives, points out that U.S. companies’ boards of directors — unlike Japanese boards — mostly comprise executives from the outside. In his opinion, Japanese companies should hire more outside directors before resorting to “poison pill” devices, which can be used to to protect existing management.
Livedoor’s victory in the battle with Fuji over control of Nippon Broadcasting was assured Wednesday when the Tokyo High Court nixed NBS’ plan to issue share warrants to Fuji to dilute Livedoor’s stake.
The Livedoor affair could encourage U.S.-style takeovers in Japan. If so, it is an opportunity to restore the corporate dynamism of the immediate postwar years, which saw the birth of companies like Sony and Honda.
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