Friday, April 08, 2005

M&A and Japanese traditional industry structure

Traditionally, Japanese industry is organized according to the Keiretsu structure. There are 5 such media groups including Fuji-Sankei group. However, the media’s traditional industry structure has been threatened by Livedoor, a new Japanese IT company.
On February 8th, Livedoor started a hostile takeover of Nippon Broadcasting Systems (NBS). NBS is the largest shareholder of Fuji TV and NBS stock price was fairly low. If you can control NBS, you can control Fuji TV as well. According to Livedoor, the company intended to start a new internet broadcasting business using resources and contents of Fuji TV, NBS and Livedoor.
Fuji TV had been the largest shareholder of NBS and was going to make NBS a subsidiary company through the friendly takeover. Fuji TV tried to block the takeover by reserving the rights of new NBS stocks only for Fuji TV. If Fuji had been successful, then Livedoor’s shares will dilute and Livedoor will lose the control over NBS.
Fuji TV also went to court to stop the takeover. They argued that Livedoor had bought NBS stock over the Internet , which made the takeover bid illegal. Fuji TV complained that, because Livedoor bought stock after normal trading hours, Fuji TV hadn’t been able to respond to Livedoor’s hostile takeover. However, Livedoor insisted that current corporate laws did not forbid takeover bids after normal trading hours. Tokyo Local Court (first trial) and then Tokyo High Court (second trial) supported Livedoor's arguments. On March 23, NBS became a subsidiary of Livedoor.
Fuji TV also tried to defend itself against a takeover by Livedoor. On March 24, Fuji TV announced that NBS would lend its Fuji TV stocks to Softbank Investment for 5 years. So, even though Livedoor controlled NBS it would not control Fuji TV. Currently, Livedoor and Fuji TV are negotiating for an out-of-court settlement, but few are optimistic about the reconciliation.
Livedoor’s hostile takeover has implications for other Japanese industries. The Keiretsu structure has already been breaking down after more than a decade of depression. Now, the Keiretsu structure is even shakier, because a third company can control the whole group by making a takeover bid to the weakest company. Companies with high assets (esp. cash) and low stock prices should prepare for a hostile takeover bids. Allegedly, Hitachi, the biggest Japanese manufacturer, is considering about adopting countermeasures such as the “poison pill”. This measure has been used by U.S. companies used since ’80, and is permitted by Japanese Corporate Law since 2002.
In conclusion, Livedoor case revealed anti-competitive industry structure of mass media in Japan. Also, the same situation will happen to other Keiretsu groups. Traditional Japanese companies should rethink their business policy of maximizing the organization’s (or employees’) benefit. Companies should maximize their shareholders’ benefit, because it is the common sense and the corporate law says the same thing.

Masato Eguchi, Yihui Zhang, Yuxiang Luo


Blogger Rachel Soloveichik said...

I wonder what the effects the shake-out will have on the US. On the one hand, more competitive industries might produce more efficiently, and then lower price, helping Americans. On the other hand, now that the owners want a profit they will raise prices, hurting Americans.

11:53 AM  
Blogger John Smith said...

Thank you for bringing more information to this topic for me. I'm truly grateful and really impressed. Thanks.

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3:31 AM  

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