Hostile Japanese deal propels Abe’s third arrow

Descente

18/03/2019 02:29

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Jeffrey Goldfarb
    HONG KONG, March 18 (Reuters Breakingviews) - Things are
getting testier at Japan Inc. In a rare act of domestic
corporate aggression, trading house Itochu  8001.T  snatched a
degree of control over $1.8 billion sportswear maker Descente
 8114.T . Toshiba  6502.T , meanwhile, faces a shareholder
insurrection while electronics group Alps Alpine  6770.T  has
been sued over the merger that created the company. These
hostilities are helping propel Shinzo Abe’s so-called third
arrow.
    The prime minister’s monetary and fiscal policies flew fast
from his economic quiver after he took office in 2012.
Overhauling the way Japanese companies manage their balance
sheets and structure themselves, though, has been slower.
Revisions to the country’s corporate governance code last year
helped, and Abe is pressing the case. Earlier this month, he
promised to draft guidelines encouraging listed subsidiaries to
have more directors who are independent from the parent
companies.
    Some boards are already feeling the heat. Frustrated by the
leadership and strategy at Descente, which licenses brands such
as Le Coq Sportif and Umbro, Itochu took the unusual step of
offering shareholders a hefty premium so it could lift its stake
to 40 percent from 30 percent. Success, unveiled on Friday,
means it will have more clout when it comes to acquisitions and
directors. With China’s Anta Sports Products  2020.HK  backing
Itochu, Descente also may be nudged to accelerate growth plans
on the mainland.
    U.S. hedge fund King Street is similarly fed up with
Toshiba. In an uncommonly pushy move for Japan, it said last
week it would nominate a slate of directors to replace a
majority of the $18 billion conglomerate’s board. That followed
a dramatic profit warning. Likewise, activist Oasis Management
has started legal action to unwind the January combination of
Alpine Electronics with its larger affiliate, Alps, alleging
that shoddy corporate governance trampled on the rights of
minority shareholders.
    Such actions are apt to rattle those Japanese chief
executives who have ignored the changing climate, and even those
who have become more receptive to shareholder entreaties. Stock
buybacks have increased and in another encouraging sign, many
companies have stopped adopting defensive measures such as
poison pills. An acceleration of such assertive behavior should
help generate better returns and overall growth, hitting Abe’s
ultimate bullseye.   
    On Twitter https://twitter.com/jgfarb
    
    CONTEXT NEWS
    - Japanese trading house Itochu said on March 15 that it had
increased its stake in sportswear maker Descente to 40 percent
from 30 percent, in what amounts to a rare hostile takeover for
the country. A stake of more than one third gives Itochu veto
power over strategic decisions like acquisitions.
    - Itochu’s tender offer, which began on Jan. 31, proposed
buying shares at 2,800 yen apiece, a 50 percent premium to where
they had been trading. 
    - For previous columns by the author, Reuters customers can
click on  GOLDFARB/  
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Itochu statement    https://www.itochu.co.jp/en/ir/news/2019/__icsFiles/afieldfile/2019/03/15/ITC190315_e.pdf
Itochu amasses 40 pct stake in Descente in rare Japan hostile
bid     urn:newsml:reuters.com:*:nL3N2121TZ
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 (Editing by Clara Ferreira Marques and Katrina Hamlin)
 ((jeffrey.goldfarb@thomsonreuters.com; Reuters Messaging:
jeffrey.goldfarb.thomsonreuters.com@reuters.net))