Tuesday, June 26, 2007

Unsolicited Takeover, Shareholder Activism and Cross Shareholding - Japan

Recently, some companies in Japan have become a target of unsolicited takeover bids from giant investment funds. The latest one is the fight between Bull-Dog Sauce Co holder and Steel Partners Japan Strategic Fund (Offshore) L.P., a New-York based fund and largest shareholder of it. Bull-Dog Sauce Co. finally succeeded in gaining the support of shareholders at its general shareholders meeting for its proposed takeover defense measure against a buyout bid.

This shareholder activism against takeover bid could lead them to reconsider its classic approach so called cross-shareholding. In Japan, it is a common practice for some companies to exchange equity shares in each other, a practice called “cross-shareholding or Kabushiki Mochiai (mutual aid shareholding). The common reason is to protect stakeholders’ interest and to some extent (in fact) to weaken market pressure. The other demerit is there is no effective oversight by shareholders of corporate operations and managerial performance. The practice of cross-shareholding also has a negative effects on the stock market as rarely traded on the exchange.

On my view, the shareholder activism is a necessary action to prevent good company from greedy speculative takeover which just chasing quick-yield. However, over-reaction on takeover bid it would erode confidence among foreign investors and adversely affect the Japanese economy.


Anonymous said...

And cross-shareholding is on the rise now, for the first time in six years. The reaction to Steel Partners has been an interesting one, and I think it has demonstrated the poor risk management strategies that dominate boardroom thinking in Japan.

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