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‘Advance Warning System’ for takeovers approved by Sapporo shareholders; What will be Steel Partners’ next move?

On Thursday, shareholders of Sapporo Breweries voted to approve an ‘advance warning system’ for takeovers that will provide the company’s board of directors with the means to thwart takeover attempts. If you’ve been following the news, you’re already aware that the board is attempting to avoid being taken over by Steel Partners Japan Strategic Fund, which is currently Sapporo’s largest shareholder.

In a statement released on March 22, before the vote, Steel Partners addressed the shareholders of Sapporo directly, informing them:

You, as shareholders, are the owners of Sapporo. Management itself says: “shareholders should decide whether to approve significant purchases of the Company’s shares”. But the [proposed] AWS does not do that…

The new AWS proposed by Sapporo puts management in a position to frustrate offers being made to you, its shareholders. Management can demand virtually any information from an offeror and management can do so repeatedly. After that, an offeror has to wait while management decides if it is satisfied with the offeror’s responses. This process could take many months or longer. In certain cases, the new AWS may preclude interested parties from even considering making an offer to you.

After the AWS was voted in, Steel Partners issued another statement to shareholders, with Warren Lichtenstein, a managing partner of the Fund, saying:

While we are disappointed that the proposed ‘advance warning system’ has been approved, we are extremely pleased with the large number of
shareholders that supported us by voting against the proposal.

Here is part of what Steel Partners had to say to the shareholders at the general meeting, before the vote was to be taken:

Japanese law already provides a carefully considered and effective framework for all relevant information an offeror must provide, a mechanism for management to ask for more information and the timetable for any tender offer. Why is this not sufficient for management? We cannot see why management needs information that goes well beyond what the Japanese Legislature thinks is reasonable or needs a period of time that is around double the time the Japanese Legislature deems to be reasonable for shareholders to consider an offer.

The Company asserts that an “independent committee” set up by management during the AWS process will ensure the process is carried out fairly, but do not be misled. The “independent committee” does not achieve this purpose. There are no directors on the committee. Its members do not owe any duty to shareholders and the new AWS does not allow shareholders to hold them accountable for their actions. Further, the Company’s Board makes the appointments to the committee. This committee is accountable to the Board, not shareholders, and merely makes recommendations to the Board.

Ladies and gentlemen, this vote comes down to one major question; do you want the right to decide when and to whom you sell your shares, or do you want management to have the ability to deprive you of this right by going beyond what is already required by Japanese law?

Reading the statements, it seems clear that Steel Partners has made a rational, logical argument in favor of rejecting the AWS. It’s approval might even be seen as the antithesis of what Scott Callon of Ichigo Asset Management was able to pull off at Tokyo Kotestsu back in February. That case also involved shareholders rejecting a takeover bid, but the essential difference was that Mr Callon helped put the decision in the hands of the shareholders, and thereby be able to act in their own self-interest against the wishes of the board of directors.

Steel Partners has yet to say whether it will take the option of initiating a hostile takeover bid for Sapporo.

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