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Steel Partners sells off stakes in Bull-Dog and Kikkoman; TCI is holding paper losses in J-Power

Earlier today, the Nikkei reported that Steel Partners has sold off all of its shares in the Bull-Dog Sauce Company, as well as Kikkoman. A year ago, Steel Partners held about 10% of Bull-Dog shares, and launched its takeover offer in May. After the Supreme Court declared that Bull-Dog’s anti-takeover defense measures were legal, Steel Partners brought in about 2 billion yen from the company when it bought back its stock warrants. It has been speculated that Bull-Dog has spent up to 70% of its sales revenue from the past year on boosting its cross shareholdings.

According to the paper, Steel Partners also made about 2 billion yen from its investment in Kikkoman. Although we don’t know the reasons exactly why Steel has decided to pull out of its Kikkoman position, it is certain that Kikkoman is gearing up to spend quite a bit of money on a new ketchup factory in China as well as 6 or 7 soy sauce factories in South America, China, North America, Oceania, Southeast Asia and Eastern Europe. The construction is expected to cost tens of billions of yen and bring Kikkoman’s production volume near the range of an annual 1 million kiloliters.

Back on April 1, the Nikkei published a piece entitled Firms Begin To Dismantle Takeover Defenses As Benefits Remain Unclear, which highlighted the fact that there have been no successful hostile takeovers in Japan, that courts tend to be friendly to management, that takeover measures hurt share value, and that poison pill measures can be quite costly to a firm.

Six days later, the Nikkei published a piece entitled More Firms Adopt Takeover Defenses That Seek Shareholders’ OK which stated that 443 firms had adopted anti-takeover measures by the end of FY2007.

Finally, it’s worth noting that just as Steel Partners exits now from its Bull-Dog chapter with a profit, that The Children’s Investment Fund is estimated to be holding 16 billion yen in paper losses deriving from its investment in J-Power. Today’s Yomiuri tells us, “If TCI refuses to obey the government order (to stop purchasing shares in J-Power), the fund or its executives may face a fine or prison term of up to three years.”

J-Power has no anti-takeover measures in place.

All Shareholders not created equal: Tokyo High Court

Corporate law does not deny discrimination of some shareholders in an economic sense or in terms of voting rights fluctuations.

Tokyo High Court Presiding Judge Satoru Fujimura, in his ruling against Investment Fund Steel Partners last week.

Steel Partners all over the news: METI speaks up

As we discussed in the most recent edition of BizCast Japan, Steel Partners Japan President Warren Lichtenstein was in Japan earlier this week. In this humble observer’s opinion, he simply shined in front of the cameras before heading off to meet with the senior management of some of the companies that Steel Partners is investing in/trying to take over.

Then things didn’t go so well. During an hour-long meeting in Tokyo on Wednesday, Lichtenstein was quizzed by Bull-Dog President Shoko Ikeda about the intentions behind the fund’s tender offer and also grilled on what would be its business plan for the company should the offer be successful. According to reports, Lichtenstein responded by “asking Ikeda what tender offer price the Japanese firm would be willing to accept.”

After that meeting, Steel Partners filed an injunction to stop Bull-Dog from issuing equity warrants, which would dilute Steel Partners’ share in the company and make a takeover much more difficult. Steel Partners holds that such a move may be illegal, and at his press conference, Lichtenstein stressed that such steps have not been taken before in Japan, and that they are being considered because companies do not understand what Steel Partners is trying to do.

Steel Partners fought back by saying that its “poison pill” measures are not only legal, but appropriate in such a situation.

Then, on Friday, a METI Vice Minister, Takao Kitabata, criticized the investment tactics employed by Steel Partners, claiming that none of its takeover proposals are helping to increase corporate values, and that “poison pill” tactics are fully legal.

We think Steel Partners is going to stay in the news for some time to come, and those companies who adopt poison pill strategies are going to eventually regret it. Or not, given the average age of their senior management.

Foreign Investment in Japanese Real Estate up 230% in 2006

I haven’t seen anything in the English news yet, but the Nikkei reported in Friday’s evening edition that investment in Japanese real estate by foreign investors more than tripled in 2006, reaching $13 billion worth of property. The data was released in a report done by Jones Lang LaSalle.

American and Australian investment funds led the charge, with foreign investors on the buying end of a whopping 25% of all real estate transactions done in Japan in 2006.

Last year, the total value of real estate scooped up by foreign investors in the Asia-Pacific region soared 58% to $30 billion. 43% of those purchases were conducted in Japan.

LaSalle indicated that as far as Japan goes, continued low interest rates as well as expectations of high future returns spurred the splurge.

Steel Partners seeking another vote against anti-takeover measures

No, we’re not talking about another vote at Sapporo. This time, Steel Partners is making an appeal to the shareholders of Aderans Co., Ltd., a wig maker located in Tokyo. Steel Partners holds a 24.68 percent stake in the company, and has proposed that the “Measures for Countering Large-scale Acquisitions (Defense Policy Against Takeover)”, which was approved at a board of directors meeting on December 18, 2006, be abolished.

Steel Partners has issued a press release stating:

The “Measures for Countering Large-scale Acquisitions (Defense Policy Against Takeover)” (the “Policy”) may deprive the shareholders of an opportunity to decide for themselves on the merits of certain types of acquisition proposals. In addition, the revised Securities and Exchange Law already ensures the protection of the rights of existing shareholders by requiring greater disclosure and by extending the tender offer period. Accordingly, we believe there is no justification to maintain the Policy, which places excessive restrictions on transactions beyond the regulations of the law.

Sound familiar? Thus far, it sounds like Steel Partners’ proposal to the shareholders of Sapporo Breweries all over again.

There is one key difference, though: Aderans has already had anti-takeover procedures in place. According to the Japan Times, under pressure from Steel Partners, the board of directors has decided “it would first scrap the measure at its shareholders’ meeting and then make a new proposal for adopting a defensive scheme including almost the same measure.”

Talk about calling a bluff! We’ll be very interested to see how this vote goes. Both sides have plenty of time to campaign for their respective causes, as the shareholder’s meeting is scheduled for late May.

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