Explainer: What makes Japanese hotelier Unizo attractive for Blackstone and Elliott?
17/10/2019 10:13
By Junko Fujita
TOKYO, Oct 17 (Reuters) - Little-known hotelier Unizo
Holdings Co Ltd 3258.T has found itself the centre of private
equity attention, with global names vying for the opportunity to
buy into Japan's property market on the cheap.
However, the rare-for-Japan takeover approach which sparked
interest in Unizo has left the hotelier fighting off suitors
both hostile and friendly, in an unprecedented manner that has
made it a test case for government efforts to attract foreign
investors via improved corporate governance and transparency.
WHO HAS BID FOR UNIZO?
Blackstone Group Inc BX.N upped the ante on Tuesday with
plans to launch a 5,000 yen-per-share offer valuing the firm at
$1.6 billion, having already had two proposals rejected.
That came after Unizo changed its mind about being bought
out by Fortress Investment Group - backed by Japan's SoftBank
Group Corp 9984.T - whom it had enlisted to defend itself from
an offer by Japanese travel firm H.I.S. Co Ltd 9603.T .
Unizo, which owns office buildings in Tokyo, New York and
Washington, also rejected a bid from an unidentified local fund
In the interim, U.S. hedge fund Elliott Management bought
its way up to become Unizo's top shareholder with 13.14%.
Japan's Ichigo Asset Management also disclosed a stake of almost
7% and British bank Barclays PLC BARC.L said it holds over 6%.
WHY IS UNIZO ATTRACTIVE?
Unizo's stock has risen about 150% to 4,945 yen since H.I.S.
on July 10 first bid for a controlling stake in the hotelier.
Yet that still pales in comparison to the value of its assets
which UBS analysts pegged at over 7,800 yen per share. That
means any buyer would gain Unizo's properties at a discount.
Moreover, though it is not uncommon for Japanese stocks to
trade well below book value, Unizo lacks the defences from
hostile takeovers that domestic companies traditionally enjoy.
The firm, whose assets include hotels and offices, was a
beneficiary of a surge in property prices when investors flocked
to real estate in response to government efforts since 2012 to
stimulate economic activity by reducing borrowing costs.
Property firms' stock prices, however, did not rise in
tandem, resulting in a gap between lacklustre shares and surging
asset values. That has given suitors the chance to gain
expensive real estate by buying cheap landlords.
However, unsolicited bids are rare in Japan as firms often
have a web of cross-shareholding loyalties with domestic peers
which together could block any takeover attempts. The consequent
absence of such bids has also made them taboo.
Making Unizo different is the lack of cross-shareholding as
well as the reduced influence of founding firm Mizuho Financial
Group Inc 8411.T following a series of share sales. Those
sales diluted holdings, made it easier for outsiders to buy
Unizo stock and reduced the number of stable shareholders.
Breaking the taboo was the offer from domestic firm H.I.S.
led by a chief executive known for bold deal-making, Hideo
Sawada.
WHY DID UNIZO REJECT THE BIDS?
Unizo hired banks to find a "white knight" bidder and thwart
a takeover by H.I.S., whose offer it dismissed as too low. It
received 16 bids and in August said it would support a 4,000
yen-per-share offer from Fortress.
However, it pulled its support for Fortress in September
saying the asset manager would not agree to new - and unusual -
conditions including establishing a mechanism where a group of
299 non-executive employees would control the new owner's power
to sell assets.
Though spurned, Fortress nevertheless extended its offer
period for the third time on Thursday to Nov. 1.
Unizo also rejected two proposals from Blackstone, saying
the U.S. firm would not meet the conditions placed on Fortress.
Blackstone said it would consider options including pursuing
its tender offer if Unizo did not agree to a third proposal by
Oct. 23. On Thursday, Elliott Management said Unizo should
consider Blackstone's proposal, saying it would consider
measures should the board fail to act in accordance with its
duties.
Unizo has also said it rejected a bid from a "locally
renowned" fund which it said was unable to prepare the money
needed.
WHAT ABOUT DISCLOSURE?
H.I.S. in August dropped its offer and has since sold most
of its near 5% stake in Unizo, relinquishing the status of
Unizo's biggest shareholder to Elliott which built up its stake
following the H.I.S. bid.
Elliott demanded further explanation from Unizo as to why it
pulled out of a deal with Fortress, saying it was "concerned
about the lack of disclosure and the risk of conflicts of
interest". Unizo said it disputed Elliott's claim.
Unizo did not initially disclose the conditions placed on
Fortress, prompting commentators to point to the government's
corporate governance push which they say has broadly succeeded
in winning investor confidence, albeit for extreme cases.
Such cases include Kansai Electric Power Co Inc 9503.T
saying executives had received payments from a local official,
and the ouster and arrest of former Nissan Motor Co Ltd 7201.T
Chairman Carlos Ghosn for financial misconduct, which he denies.
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BREAKINGVIEWS-Blackstone makes like a sea urchin in Japan
urn:newsml:reuters.com:*:nL3N2710JM
Unizo shares jump after Blackstone launches tender offer
urn:newsml:reuters.com:*:nL3N27108I
Elliott pushes Japan's Unizo to accept $1.6 bln Blackstone bid
urn:newsml:reuters.com:*:nL3N2721RZ
Unizo's share price https://tmsnrt.rs/2OXEEo3
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(Reporting by Junko Fujita; Editing by Christopher Cushing)
((813-4563-2711, junko.fujita@thomsonreuters.com, Reuters
Messaging:junko.fujita.reuters.com@reuters.net;))