TT-430 -- Bull-Dog bites back, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, July 22, 2007 Issue No. 430


- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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This week we're going to try something new. A reader has
posted a commentary about the Bull-Dog Sauce/Steel
Partners showdown and discusses whether or not the Japanese
courts should be taking sides in their rulings. We then
comment about the posting, as we ask whether the Japanese
have got it so wrong? This is an edited version of the
posting, and you can find the original at

[Our Reader writes...]

Japan High Court Rules Against Saucy Gaijins

Facing a potential takeover by the foreign investment firm
Steel Partners, Japanese tonkatsu sauce maker Bull-Dog was
saved last week in a disturbing effort by the Japanese
courts to prevent foreign money and ownership permeating
into an important aspect of the Japanese cultural dinner

Steel Partners has made investments in over 30 companies
in Japan over the past couple of years, with a number in
the "washoku" industry, including the holy grail of the
Japanese sauce portfolio, Kikkoman soy sauce. Since Steel
Partners announced they owned over 5% back in 2005, the
stock price has increased over 50%. But enough is enough,

The number of M&A and takeovers in Japan, both domestic and
from abroad has grown drastically in recent years on the
back of a reviving Japanese economy. And a hot topic of
deliberation in financial circles has been the introduction
of so-called "poison pills" to prevent takeover by
undesirable suitors. Casting my mind back to ECON101,
wasn't the idea of a free market just that, freedom? And
that equal rules and fair competition by all ultimately
drives up the value of the economy and the companies which
are a part of it? The legality of poison pills has been
hotly debated, but the courts have now quashed this debate,
allowing the use of poison pills in Japan. Depending on
the suitor. Maybe.

[Continued below...]

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Steel Partners offered a premium on the current share price
in an open takeover bid. They were told this was not
welcomed by Bull-Dog, but proceeded anyway with a hostile
bid. Garnishing 80% of votes at the Shareholder's Meeting,
the pill was activated, and Bull-Dog diluted the value of
shares held by Steel Partners, from just over 10% to 2.5%.
Bull-Dog was required to buy back the useless warrants from
Steel Partners, at a cost of approx. JPY2.3bn.

So in total, the Bull-Dog defence cost them the buy-back
price of JPY2.3bn, plus JPY700m in legal and advisory fees
-- giving the company a combined loss of JPY3bn, almost 15%
of its total assets of JPY18bn. Clearly, this defense
decreased the value of the investments of those 80%
of shareholders who voted for the poison pill, not
increased it.

Not only does this travesty represent surprising
value-destruction for and by the shareholders of Bull-Dog,
but it has also signaled to foreign investors that Japan is
still not a fair and transparent market to invest in.
Instead, the establishment seems to be happier to jump in
and block the actions of foreigners they don't like. It
also shows that Japanese investors are still happier to
receive their box of tonkatsu sauce during dividend season
than support a company which might bring them higher
profits and increase the value of their investments. I
consider this a strong blow for those who hoped the
recovery in the Japanese economy would be accompanied by a
new level of sophistication of the investing public.

Poison pills are illegal in the UK, and rare in continental
Europe. They are allowed in the US, but their legality was
debated for over 5 years in the early 80's. The first pill
was approved at Board level in Japan only 2 years ago, and
the high court has now set a disturbing semi-precedent by
allowing their use. Their reasoning? Steel Partners is an
"abusive investor", which I find to be an unsettlingly
subjective judgment.

In my opinion, the judiciary has done the equivalent of
decreeing that the Gaijin kid is not suitable for his
"family", and will heed any cries for help. However if
another young local kid from down the road were to ask
to become part of a given corporate family, historically
the judiciary has agreed to stay out of the way. This
comprises the paternal role of the judiciary, to protect
the family do what is in their interest -- not necessarily
to uphold a rule of law or free market economics. This is
yet another bleak sign on the already stunted path of
globalization for Japan.


[Our Take...]

During the early stages of the attempted Steel Partners
takeover of Bull-Dog, we found ourselves rooting for Steel
as well. After all, they were forcing an apparently
conservative company to change and to improve its returns
to investors. And when we heard about the poison pill,
again, we felt it was extremely unfair that management
could discriminate so blatantly against one shareholder.

However, the fact is that the Bull-Dog poison pill
arrangement was approved by 80% of Bull-Dog's investors.
And whether their actions are stupid or uninformed, they
deserve what they vote for, just like those of us stuck
with governments we don't like. That is to say, the
Bull-Dog decision was fair for the majority of its

Further, while poison pills may be off-putting, they are
quite legal in other parts of the world, and particularly
in Canada and the USA, where they have been in place since
the 1980s. Indeed, the Japanese legal code for poison
pills was drawn upon substantially from the US Delaware
legal code.

The thinking behind poison pills is that they allow the
company to protect itself against abusive shareholders. In
the USA, the 2004 case of Hollinger International vs.
Conrad Black highlights the usefulness of a poison pill. In
this case, Black was accused of taking huge unauthorized
"non-compete" payments from another party during the sale
of company assets to that second party. After being
replaced by the Board he tried to sell his shares to two
billionaire mates in the UK. The new CEO of Hollinger
enacted a poison pill to stop the sale -- to "protect the
other shareholders" -- and to keep Black on the hook until
the case was heard. Now, just this month, Black was found
guilty of fraud and is out on bail. Most likely he will go
to jail for 2-4 years sometime later this year.

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Besides pure defense, poison pills are also proven ways to
increase returns to investors, because if an acquirer
really is serious about buying a firm, the pill forces up
the sale price of a company, since the bidders have to pay
enough to overcome the effect of the poison pill. A 2005 US
study found that the M&A premium was about 22% higher for
companies having a poison pill in effect, versus ones that
did not.

We agree that the Steel Partners debacle has created some
very negative press for Japan. But it is hard not to agree
to some extent with the Japanese courts' conclusion that
Steel Partners are "abusive" -- at least from the Japanese
perspective. There are plenty of other foreign investors in
Japan who have successfully taken over Japanese firms not
by bashing down the front door but instead proving their
intentions by actions of support and cooperation.

Western investment firms may hate to hear that they might
have to do things differently in Japan versus elsewhere,
and that Japan is not up for sale to the highest bidder.
But the reality is that Japan isn't a third world country,
it doesn't like carpetbaggers and greenmailers, and it gets
to make its own rules and retain its own social and legal
values. As non-Japanese, we may not like the culture of
enforced cooperation and personal relationships, but it is
a reality and Steel Partners would do well to start working
on those aspects of its operation before engaging in the
next takeover effort.

In fact, if Steel Partners are as committed to bringing
shareholder value as they say, then instead of simply
focusing on cash, we suggest that they look at taking a
successful US operation like Collins Industries, a
truck-making firm they took over in 2006, and finding some
way to have that company enter into a business relationship
with a struggling Japanese truck firm. They may find that
this type of approach, while slower and more inconvenient,
yields much better results and will keep the "natives" from
getting crazy about foreign invaders.

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+++ NEWS

- Quake-related power restrictions
- Foreign credit card forgers caught
- Another cloudy summer
- Salaries down 0.2% in May
- Cadbury Schweppes buys out Sansei Foods

-> Quake-related power restrictions

The Minister of Trade has said that there may be industrial
power restrictions following the closure of the
Kashiwazaki-Kariwa nuclear power plant, Japan's largest,
due to earthquake damage from the recent Niigata
earthquake. The Minister, Akira Amari, said that the
country should be able to avoid power cuts, but may have to
introduce power rationing, especially if the summer is as
hot as has been forecast by the Met Agency. (Source: TT
commentary from, Jul 20, 2007)

-> Foreign credit card forgers caught

Three Nigerians were arrested last week for using forged
foreign credit cards to make over JPY100m of purchases in
Japan and Korea. The police were alerted after card owners
who had never been to Japan started receiving bills for
goods purchased here. The 3, believed to have been aided by
at least another 3 accomplices, bought Louis Vuitton bags,
Rolex watches, consumer electronics and other products that
can be resold easily as second-hand items. ***Ed: One
wonders about the intelligence of these guys, living and
using the cards in Japan, they'd have to stick out like a
sore thumb. Apparently they got nailed after being easily
identified by shop assistants. At least you'd think they
would have fled the country within the 3-4 weeks it takes
for the purchases to hit the card statements...** (Source:
TT commentary from, Jul 21, 2007)

-> Another cloudy summer

As we frequently have to go out and visit clients, we're
happy about the ongoing cloudy weather because it certainly
is keeping temperatures down. However, the Met Agency is
sticking to its guns in saying that this summer will be a
scorcher, just as soon as the rainy season air flows move
past the Kanto region, where they have been stuck for
several weeks. In the meantime, the lack of sunlight is
hitting record lows, just 41% of normal years, and farmers
are worrying whether there will be another rice crop
failure as there was in 1993. (Source: TT commentary from, Jul 21, 2007)

-> Salaries down 0.2% in May

We've been saying it all along, that Japanese companies are
hanging on to their windfall profits, rather than sharing
with their employees -- with the possible exception of
Toyota of course. Now, figures released by the Ministry of
Labor seem to confirm this. According to the Ministry, the
average cash earnings of regular employees, including
overtime and bonuses, were JPY275,148 in May, down by 0.2%
from the year before. Further, the average pay was down
0.6% in the same period. ***Ed: In case you wondered, the
Ministry also gave figures on how many workers there are:
32.876m full-timers, and 11.408m part-timers. Our take is
that it's the 3.7% increase in part-timers that is reducing
overall salaries.** (Source: TT commentary from,
Jul 17, 2007)

-> Cadbury Schweppes buys out Sansei Foods

Despite all the fuss about certain funds trying to smash
down the front door of Japan Inc., there are other more
strategically inclined companies doing perfectly well with
their M&A strategies in Japan. One such company is Cadbury
Schweppes, which has successfully taken over candy maker
Sansei Foods. Cadbury bought out the company for JPY13.2bn
and now owns 96.08% of Sansei. (Source: TT commentary from, Jul 20, 2007)

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.


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