Lessons learned from takeover bid
(From The Japan Times September 3 issue)

王子製紙TOB失敗の教訓

    As some of its facilities are old enough to be scrapped, Oji had paid attention to Hokuetsu's plan to install new equipment in its Niigata factory. So, in March, Oji privately made a merger proposal to Hokuetsu, followed by an official proposal July 3. Hokuetsu President Masaaki Miwa turned it down July 23 after meeting with the Oji side. Oji then made the merger proposal public the same day, before announcing the planned TOB Aug. 1.

    In Japan, where business deals depend on building consensus through negotiations, Oji's TOB was unprecedented. Even so, Oji may not have been completely free of traditional thinking. Its initial step-by-step, behind-the-scenes approach may have given Hokuetsu enough time to outmaneuver Oji.

    On July 21, two days before Mr. Miwa's meeting with the Oji management, Hokuetsu announced a defense plan — to issue 50 million new shares at ¥607 per share to Mitsubishi Corp., Japan's top trading house, which had indicated it wanted to strengthen its position in the nation's paper market.

    On Aug. 7, Hokuetsu said it had completed the "third-party allocation" of new shares to Mitsubishi, making it Hokuetsu's largest shareholder with a 24.4 percent stake. It is reported that Mitsubishi agreed to purchase the new shares even though it was not informed of the behind-the-scenes contacts between Oji and Hokuetsu.

    Oji assumed that Mitsubishi, with which it was on close terms, would support the proposed merger once it was made public. But that didn't happen. Oji did not take legal action, such as seeking a court injunction to block Hokuetsu's issuance of the new shares to Mitsubishi, believing that such action would only contribute to worsening relations with Mitsubishi. This hesitation on Oji's part appears to have hurt its prospects for acquiring Hokuetsu.

    In addition, the nation's No. 2 paper producer, Nippon Paper Group Inc., which shares the same corporate roots as Oji, came to Hokuetsu's aid by buying Hokuetsu shares — a move that surprised Oji. Nippon Paper Group eventually purchased an 8.85 percent stake in Hokuetsu.

    Thus a three-way tieup was formed among Hokuetsu, Mitsubishi and Nippon Paper Group by mid-August, making Oji's attempt to gain a controlling stake in Hokuetsu extremely difficult.

    Hokuetsu, which was established in Nagaoka, Niigata Prefecture, in 1907 and registers its headquarters in that city despite the fact that its actual main office is in Tokyo, took advantage of its longtime close links with the prefecture. When Hokuetsu requested that local banks, such as Daishi Bank and Hokuetsu Bank, not sell their stakes in the paper manufacturer, the banks complied. Niigata Mayor Akira Shinoda expressed his support for Hokuetsu's effort to thwart Oji's TOB.

    Hokuetsu President Miwa visited the Niigata and Nagaoka chambers of commerce to urge local business leaders to support Hokuetsu. The labor union of Hokuetsu employees supported the management.

    Hokuetsu thus succeeded in creating an image, at least within Niigata Prefecture, that its business activities were community-based and that Oji's move was against the interests of local stakeholders.

    Oji's TOB was a clear failure. The leading paper manufacturer obtained only about a 30 percent stake in Hokuetsu. Oji President Shinoda aptly summarized Oji's experience: "We have yet to step beyond the bounds of Japanese companies."

    The irony is that the failure of the TOB saved enough money for Oji to invest in new production facilities. In an effort to strengthen its competitiveness, Oji plans to invest ¥50 billion to ¥60 billion in advanced equipment for installation at its factory in Anan, Tokushima Prefecture, by the summer of 2008. Other paper makers are likely to follow suit. This could lead to excess supply in the paper market — the very thing that Oji wanted to stave off by merging with Hokuetsu.

    Although the TOB for Hokuetsu failed, the event must have given executives of Oji and other companies food for thought as they work out future business strategies, regardless of whether they focus on mergers and acquisitions or other means.

The Japan Times Weekly: September 9, 2006
(C) All rights reserved

    生産設備が老朽化していた王子は、新潟工場で設備増強を計画していた北越製紙に対し7月3日、正式に合併を提案した。北越の三輪社長は23日、王子側との会談後、提案を拒否した。

    交渉を通じ合意形成を図るのが一般的な日本の企業社会では、今回のTOBは前代未聞だった。

    北越は王子提案を拒否する2日前に、5000万株の新株を1株当たり607円で三菱商事に対し発行するTOB防衛策を発表した。三菱は製紙業界における支配力の強化をねらっていた。

    8月7日、北越は三菱商事に対する新株の第3者割り当て完了を発表、三菱は北越発行株式の24.4%を保有する大株主になった。

    三菱と協力関係を結んでいた王子は、三菱は当然、合併計画を支持すると期待していたが、ことは期待通りに進まなかった。王子は、三菱との協力関係を考え、北越の新株発行の差し止めを求める法的措置を取らなかったため、吸収合併に失敗したようだ。また、王子と同系列だった業界第2位の日本製紙グループが北越支持に回り、同社株式の8.85%を取得した。北越・三菱・日本製紙の3社連合が、王子の北越支配を難しくした。

    王子のTOBは完全に失敗に終わった。しかし、おかげで、徳島県の工場の設備増強に500億〜600億円の投資を計画している王子は資金的余裕ができた。同業他社も設備増強に追随すると予想され、王子が北越との合併で回避しようとした供給過剰が起きる恐れがあるのは皮肉である。

    今回のTOB失敗は、合併・吸収をねらう企業経営陣によい反省材料を与えるだろう。