U.S. fund says Japan's Shimizu should halt bid, says unfair to minority shareholders
18/03/2022 09:20
(Adds details, regulatory background)
By Makiko Yamazaki
TOKYO, March 18 (Reuters) - A U.S.-based fund has called for
Japan's Shimizu Corp 1803.T to halt a $190 million bid to take
control of road builder Nippon Road Co Ltd 1884.T , saying the
deal would be unfair to minority shareholders and go against
governance reform.
In a letter to Nippon Road's board this week that was seen
by Reuters, Kaname Capital objected to Shimizu's bid to double
its holding to 50.1%.
Kaname, which owns 1.8% of Nippon Road, said the deal would
put minority shareholders at a disadvantage by turning them into
investors in a listed subsidiary.
"A partial bid is unsatisfactory. Only a 100% bid allows for
fair and equal treatment of all shareholders," the Boston-based
long-only fund said in its letter.
The offer price of 10,000 yen ($84.13) a share was too low
given Nippon Road's cash on hand, shareholdings and other
assets, Kaname said, putting the share value closer to 12,500
yen.
The offer by Shimizu, one of Japan's top construction firms,
left minority shareholders with "a poor choice" of either
hurrying to accept a low price or getting stuck with the reduced
valuation and trading liquidity of a listed subsidiary, the $250
million Japan-focused fund said.
Shimizu declined to comment. No one was immediately
available for comment at Nippon Road.
Both the Tokyo Stock Exchange and the Japanese government
have pushed for a reduction in the number of so called
"parent-child listings", where subsidiaries of large listed
companies are also listed.
Critics say the practice can lead to laxer governance and
ultimately lower valuations, as the parent's controlling stake
weakens the voting power of minority shareholders.
Shimizu's tender offer is set to close on Tuesday. Its offer
of 10,000 yen represents a roughly 20% premium to Nippon Road's
closing price just before the deal was announced.
Shares of the company closed not far off the offer price at
9,790 yen on Friday. Still, the company is trading at less than
its book value, according to Refinitiv data, meaning it is worth
less than its assets.
Japan had 248 listed subsidiaries as of March last year,
down more than 40% from the peak of 417 in 2007, according to
Nomura Institute of Capital Markets Research.
Governance rules have discouraged such listings, citing an
inherent conflict of interest.
The Tokyo bourse is also introducing stricter rules for
liquidity in April, its biggest overhaul of its equity market in
a decade. That will make it tougher for firms largely owned by
parent companies or business partners.
Some industrial conglomerates are selling off group
companies to eliminate parent-child listings. Hitachi Ltd
6501.T , for example, sold or took control of more than a dozen
subsidiaries in recent years, including Hitachi Chemical and
Hitachi High-Technologies.
($1 = 118.7400 yen)
($1 = 118.8600 yen)
(Reporting by Makiko Yamazaki; Editing by David Dolan and Kim
Coghill)
((Makiko.Yamazaki@thomsonreuters.com; +81-3-4563-2805;))