E-Malt.com News article: Japan: Sapporo adopts defense against Steel Partners

The U.S. hedge fund Steel Partners suffered a sharp setback Thursday in its attempt to take over Sapporo Holdings, Japan’s third-largest beer maker, which won support at a shareholder meeting to adopt a poison pill defense, Forbes reported March 29.

Steel Partners, which has amassed an 18.64% stake in Sapporo, making it the brewer’s largest shareholder, has been among the most aggressive of a growing legion of foreign corporate raiders attempting to do business in Japan despite high nationalist sentiment against foreign takeovers.

The New York-based fund launched a “friendly” offer in February to boost its stake to 66.6% in the brewer of Yebisu and Black Label beer. Some analysts speculated it could turn to an unfriendly tender offer.

Spokesman Ian Messer declined to comment on how the fund would proceed.

Warren Lichtenstein, the fund’s managing partner, said in a statement, "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."

Lichtenstein made a killing in South Korea last year, making a joint bid with financier Carl Icahn for Korean tobacco giant KT&G, an aborted yet ultimately financially rewarding venture.

However, Steel Partners has failed in three previous attempts to take over companies in Japan.

The so-called “advance warning system” approved by over two-thirds of Sapporo shareholders on Thursday is designed to delay a takeover offer for months or longer by requiring bidders seeking more than 20% of shares to go through a questioning process with management in which they are supposed to solicit approval for the sale.

It also includes a typical poison pill defense, a dilution clause allowing the issuance of new shares to existing holders to prevent unwanted investors from accumulating large stakes in the company, as well as cutting back on the time needed to activate such new issues to 10 days from 25 days.

The warning system buttresses a defense system Sapporo put in place against hostile takeovers in February 2006, a move Steel Partners criticized as depriving its shareholders the benefits of entertaining higher offer.

“Japanese law already provides a carefully considered and effective framework for all relevant information an offer or must provide, a mechanism for management to ask for more information and the timetable for any tender offer,” Steel Partners said in a statement, “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.”

If Sapporo attempts to issue new shares to friendly holders, Steel is likely to turn to the courts to try to block it.

Sapporo shares fell 0.4% to close at 828 yen ($7.09) on Thursday in Tokyo, slightly above Steel's February offer of 825 yen ($6.99) a share.

Steel Partners has failed in its three previous takeover attempts aimed at a Japanese company since 2003, beginning with Yushiro Chemical Industry, textile dyer Sotoh, and mostly recently Myojo Foods in November.

Like Myojo Foods, which was rescued by larger noodle-maker Nissin from Steel Partners’ advances, Sapporo had called on domestic rival Asahi Breweries for help only to be rejected early this week.

The struggling brewer is in the second year of a three-year turnaround plan that involves cutting 10 billion yen ($84 million) a year in costs and investing 70 billion yen ($590 million) in facilities. Its net profit dropped 36% in 2006 on falling sales.

30 March, 2007