The drama triggered when the Murakami fund, managed by maverick investor Mr. Yoshiaki Murakami, purchased a large chunk of Hanshin Electric Railway Co. shares came to an end last week as shareholders of both Hanshin and Hankyu Holdings Inc. voted for a merger. It is the first merger of major railway companies in postwar Japan and will create the third-largest non-JR (Japan Railway) railway operator in terms of consolidated annual sales.

The management of both companies needs to chart a postmerger strategy as soon as possible that will solidify the financial foundation of the new firm as well as enhance the convenience and safety of users. A new joint holding company, Hankyu Hanshin Holdings, will be created on Oct. 1, and Hanshin will become a wholly owned subsidiary of Hankyu.

The drama started in late September 2005 when the Murakami fund emerged as a large Hanshin shareholder. The fund increased its stake in Hanshin, well known as the owner of a popular pro-baseball team, the Hanshin Tigers, to about 47 percent. Through a public tender offer, though, Hankyu acquired a 64 percent stake in Hanshin, including the stake held by the Murakami fund, whose head was arrested in early June on suspicion of insider trading.

Revenues of the five major railway companies in the Kansai region have leveled off in recent years. An increase in the number of passengers is not expected. The Hankyu and Hanshin management will have to find ways to increase profits in such areas as bus transport, real estate, hotels, tourism and entertainment while increasing both efficiency and safety in the railway operations. One hopeful area will be the redevelopment of Osaka’s Umeda district, where both companies run department stores and own property. It will lead to the expansion of commerce and distribution.

Probably the most important thing will be melding the two companies’ different corporate cultures to produce the synergy needed to help the new firm solve problems and pay back debt. Hankyu’s 250 billion yen public tender offer increased its consolidated interest-bearing debt to more than 1 trillion yen.

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