Battle at Printing-Press Maker Shows Difficulty of Japan Takeovers

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After Supreme Court backs poison-pill plan against ‘aggressive interloper’, foreign investors say takeover rules need to be clarified

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This year an investment company led by Anselm Wong, a Malaysian resident from Japan, built a nearly 40% stake in Tokyo Kikai, saying it needed a shake-up for the digital age. Management retaliated, calling Mr Wong a threat to the company’s value.

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In October, Tokyo Kikai shareholders, minus Mr. Wong’s company, approved a poison-pill defense that allowed management to reduce Mr. Wong’s stake and prevent him from gaining control. They fought in Japan’s Supreme Court, which ruled in November that the poison pill was appropriate.

A loser for now, Mr Wong has vowed not to reduce his holdings and try for a controlling stake. The company isn’t implementing bullet defense for now. Still, Mr. Wong plans to keep 32.7% of Tokyo Kikai and push for change.

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“I still don’t understand why we are being punished for buying shares in the free market,” Mr. Wong said. “Are they trying to send a message to foreign investors that if you come to our country, you can’t control our companies?”

Tokyo Kikai applauded the Supreme Court’s decision. Its lawyer said the court was right in identifying Mr Wong’s company as an “aggressive negotiator” against whom Tokyo Kikai was entitled to defend itself. Mr Wong’s side’s goal was “too vague and based on such a lack of transparency that we were quite concerned about his true purpose,” lawyer Yo Ota said.

Proxy advisory firm Glass Lewis, who usually consumes poison pills, supported the management in the matter. It cited the Tokyo Stock Exchange’s finding that Mr. Wong’s company, Asia Development Capital Co.

, had cheated his books for years. Mr. Wong said the problems happened under previous management and he cleared them up.

People on both sides of the issue said the case exposed vague rules governing change of control in Japanese companies, which in practice meant that the winner of disputes was often viewed as a sympathizer by judges and government officials. Is.

“Whatever the argument for defending the Japanese takeover, this case has messed it up,” said Nicholas Baines, who heads the institute that trains independent directors at Japanese companies. If management dislikes someone, he said, “then you can kick them out of a shareholder meeting, which is against the law to treat every shareholder equally.”

While Tokyo Kikai is a relative short in the stock market with a value of less than $100 million, it is an example of a time when some global investors see opportunities in Japan when the US looks to be richly valued. The share-market value of more than 1,000 listed companies in Japan is less than their net assets, a sign that a management shake-up could lift the stock’s price.

Buyout firms like KKR & Co and Blackstone Inc.

have been active in Japan in recent years, generally focusing on favorable deals with subsidiaries or assets that larger Japanese companies want to land. Blackstone spent more than $2 billion last year for a consumer-health unit of Takeda Pharmaceutical Co.

And in 2020, Mr Buffett’s Berkshire Hathaway Inc.

Spent billions of dollars to acquire a 5% stake in five major Japanese trading companies.

But outright takeover bids in Japan often face problems, especially with media connections to politically sensitive companies such as Tokyo Kikai. In most companies, most directors are simultaneously company executives who have a conflict of interest when it comes to a potential acquirer because they want to keep their jobs.

Japan also lacks simple rules such as the UK requiring an investor to buy 30% or more of a company to make a takeover bid for the entire company.

CLSA strategist Nicholas Smith said Mr Wong’s actions would have caused concern in any global stock market, but added that regulators elsewhere would be better equipped to respond. Mr. Wong’s company suddenly emerged as the holder of more than 30% of Tokyo Kikai’s shares over the summer, and at one point, the stock rose to more than 10 times its value at the start of the year.

Mr Smith said regulators had the tools to call timeout to assess Mr Wong’s intentions, but failed to use them and forced the courts to step in.

“This acquisition is not an attempt to raise the drawbridge on bids, but a reminder that regulatory agencies will need to act faster and be more involved in regulating the markets,” Mr. Smith said. The financial services agency, the main enforcer of securities laws, declined to comment on the Tokyo Kikai case or say whether it had uncovered any issues worthy of the agency’s attention.

Mr Ota, a lawyer for Tokyo Kikai, said judges have given little guidance about what standards should be used to assess potential acquaintances. “Japanese courts have been very reluctant to conduct such investigations, so they try to rely on shareholder judgment,” he said.

Mr. Wong said his company was a legitimate investor like any other trying to unlock value, and added that the printing-press maker needed to move beyond manufacturing machines.

“They should use their relationship with the media and try to move into a digital marketing business as the paper market is shrinking,” he said. “But their focus is on the product rather than the customer’s needs.”

Write Suryatapa Bhattacharya at [email protected]

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