From the Vault: NBS takeover plot thickens, but it’s still too early for optimism that Japan is ready for change

[This post originally appeared on my no longer active Laughing Monkey site on March 12, 2005.]

Recent developments in the ongoing takeover battle between internet upstart Livedoor and old guard Fuji Television for control of Japan Broadcasting are making things interesting for Japan watchers.

Yesterday came the unexpected news that the Tokyo District court had ruled in favor of Livedoor, ordering NBS to halt its intended direct issuance of new shares to Fuji in an effort to dilute Livedoor’s holdings. Yahoo! Asia News ran this rather optimistic analysis of the ruling, describing the court’s decision as, “turning the clock forward on Japan’s capital markets.

Experts say the closely watched decision goes in line with Japan’s goal of easing regulations on the financial sector to gain a global competitive edge, easing worries that foreign investors otherwise might have shied away from making further investments in the country.

But if foreign investors were reassured by this positive news, then surely they were equally disaopointed by reports from sources inside the the ruling Liberal Democratic Party that the government was moving towards further restrictions on the activities of foreign companies.

An LDP panel on legal affairs decided at its meeting Friday to ask the Justice Ministry to change the bills regarding restrictions on M&As by foreign firms to postpone theimplementation of the step to 2007 from the originally planned 2006, the sources said.

The planned bill on M&As by foreign firms also include measures against hostile takeover bids, such as the so-called poison pill, designed to discourage bidders by increasing the takeover costs usually through the issuance of equity warrants.

So while Livedoor appears to have scored at least a temporary legal victory in its efforts to get at Fuji Television through control over its largest shareholder NBS, the successful passage of such a bill by the Diet would ensure that there will be no such future victories.

Why? Consider this observation from Youichi Yanai, chief fund manager at Tokyo Mitsubishi:

Permitting the use of `poison pill’ tactics would leave investors highly skeptical about the overall Japanese market and the very meaning of having a fair and functional capital market…

So much for easing the worries of foreign investors.

And, if these mixed messages weren’t confusing enough, today came reports that Fuji Television may be reconsidering its tactics and might seek out some sort of cooperative partnership with Livedoor.

Fuji Television Network Inc. Chairman Hisashi Hieda said past midnight Friday that his company may form a business tie-up with Livedoor Co., voicing the possibility for the first time in the monthlong battle with the Internet company over control of NipponBroadcasting System Inc.

Hieda has previously categorically rejected a tie-up offer from Livedoor and the about-face was apparently triggered by a court ruling earlier Friday in favor of Livedoor over the acquisition battle.

“If there are some merits, we can consider forming a business alliance with Livedoor,” Hieda told reporters following the decision by the Tokyo District Court to bar Nippon Broadcasting from selling massive equity warrants to his company in a bid to thwart Livedoor’s hostile takeover bid.

So, should these developments to be taken as a positive sign that Japan is finally changing, or might it merely be once again creating false hopes? I’m not holding my breath, but this is one case where I would happily admit to being wrong.

Still, the type of drama currently unfolding in the court system has all been seen before. In a worst case scenario, this may be turn out to be a repeat of the fight late last year between megabanks Mitsui Sumitomo and Tokyo Mitsubishi over a merger deal with ailing rival UFJ. Although Mitsui Sumitomo appeared to be gaining ground early on with its victory at the district court level, the Supreme Court later overturned the lower court’s ruling, effectivly giving Tokyo Mitsubishi the green light to proceed with the merger, much to Mitsui Sumitomo’s chagrin. If NBS appeals yesterday’s ruling, as appears likely, there is a good chance that the Supreme Court will rule in its favor.

In the past, there have simply been too many examples of outsiders, both Japanese and foreign making progress and then having the door shut in their faces by defenders of the good old days.