Aug. 4 (Bloomberg) -- It's a moment many Japan watchers have long waited for: an ``old guard,'' blue-chip company making a hostile bid for a rival.

Even better, Oji Paper Co.'s $1.4 billion bid for Hokuetsu Paper Mills Ltd. isn't being driven by mavericks or outsiders, but Nomura Holdings Inc. It doesn't get any more establishment than a name that dates back to the 19th century and whose history spans two world wars and the bubble years of the 1980s.

Nomura views the Oji deal as a chance to reverse a share- price slide that wiped $10 billion from its market value in four months. Yet Japan's biggest securities firm may inadvertently be pushing a much more ambitious enterprise that could leave the economy more efficient and vibrant.

Thriving mergers and acquisitions are a key ingredient missing from Japan's long-awaited recovery. Executives have long neglected shareholder rights. And if the economy is to grow faster than the 2 percent expected next year, it would help if companies improved returns on capital.

Sadly, a dearth of grassroots activism put on the backburner the idea that hidden value could be found in companies through takeovers. In recent years, efforts by upstarts like Takafumi Horie, the former Livedoor Co. president, to launch hostile takeovers had Japan Inc. circling the wagons to protect its clubby ways.

Government bureaucrat-turned-shareholder-activist Yoshiaki Murakami hasn't fared much better. He used to spend his time scouring Japan for underperforming, cash-rich companies on which to pounce. Now he, like Horie, is in trouble with the law and fighting to avoid prison.

Different Drama

The Oji drama is very different. For one thing, the company was founded in 1873 and is a longtime member of the benchmark Nikkei 225 Stock Average. For another, its takeover target, Hokuetsu, also is listed. It's the first time one Nikkei company tried to gobble up another.

In that sense, this isn't a story of barbarians at Japan's gate, but inside the gate. The reference here is to the RJR Nabisco hostile takeover brawl of the 1980s, detailed in the book ``Barbarians at the Gate.'' It's hard to exaggerate the good that can come from shareholders asking management to account for missteps like over-expanding or taking on too much debt.

Just a few years ago, the idea of a traditional Japanese company acting confrontationally toward a peer would have been unthinkable. The question is whether Oji's takeover attempt encourages other blue-chip companies to target weaker rivals.

If a genuine trend took hold, Japan could be awash in efforts to streamline a bloated and inefficient economy. Such consolidation could leave more oxygen for startup companies, making Japan less about job protection from the top down and more about job creation from the ground up.

Old Japan Digs In

Old Japan won't give up easily, of course. That can be seen in how quickly executives at Hokuetsu came up with a poison-pill defense: selling shares at a discount to Mitsubishi Corp., which would dilute Hokuetsu's market value and make the trading company its biggest shareholder. Here, the so-called friendly option may be more damaging to shareholders than the hostile one.

Nippon Paper Group Inc. also plans to buy a ``large portion'' of Hokuetsu shares to help stop Oji's bid, Kyodo News reported yesterday.

Still, the genie, as they say, is out of the bottle. With even a conservative company like Oji willing to employ brash Western measures, can Japan Inc. really return to business as usual?

In a January 2004 report, Kathy Matsui, chief strategist at Goldman Sachs (Japan) Ltd., correctly predicted that progress on shareholder activism would be ``evolutionary rather than revolutionary.'' Though gradual, it's heartening to think Oji's actions could accelerate things.

M&A Trend

Shareholders in Japan have long felt it was rude to question management or that they lacked an appropriate platform to do so. Such deference may become a thing of the past, and not a moment too soon. Pressure from the ground up could accelerate change among small to midsize companies, which mark the next phase of Japan's corporate restructuring effort.

The government should be encouraging the trend. As candidates vie to replace Prime Minister Junichiro Koizumi in September, they should be pressed on how they plan to make Japan more globally competitive. Any strategy to do so should include increasing mergers and acquisitions.

`Epoch-Making'

That explains why investors such as Hisakazu Amano, who helps oversee $16 billion at T&D Asset Management Co. in Tokyo, hope the Oji deal will be ``an epoch-making'' one for Asia's biggest economy.

The wisdom of all this is found in Oji's rationale for the takeover: the combination of its bigger corporate scale and Hokuetsu will create a more profitable, globally competitive company. If only more executives thought along similar lines, the Nikkei might be rising this year instead of being down 4 percent.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek Jr. in Tokyo at wpesek@bloomberg.net

Last Updated: August 3, 2006 15:57 EDT