Oct. 2 (Bloomberg) -- Takefuji Corp., Japan's largest consumer finance company by market value, is preparing takeover defenses after the company's shares dropped 33 percent this year as the government moved to change lending laws.

Takefuji, whose founder Yasuo Takei passed away in August, is considering buy-backs and selling securities that offer the holder the right to buy new stock, Hikaru Kondo, president of Takefuji, said in an interview in Tokyo. ``We need to take all kinds of measures to prevent hostile takeovers.''

``Mergers and acquisitions, including management buyouts are likely in the consumer finance industry,'' said Yasuto Tsuruta, a managing director at Credit Suisse Group in Tokyo.

Japan's consumer finance companies are considered bid targets after their stocks plunged as the courts pared back interest rates as high as 29 percent and the nation's ruling party drafted a bill to cut charges. The non-bank financial group of the Topix index is down 24 percent this year, making it the worst performer.

Takefuji will also seek a stable shareholder as a takeover defense, Kondo said. ``We'd probably feel very safe if someone who has supported our expansion becomes such a shareholder.''

Shares in Takefuji closed 2.77 percent lower at 5,270 yen in Tokyo. Japan's four largest consumer lenders, Aiful Corp., Promise Co., Acom Co. and Takefuji were all trading at less than their book value, or assets minus liabilities, at Friday's close.

Shares Slide

Japan's Supreme Court in January triggered a slide in consumer lender stocks when it ruled that interest rates in excess of 20 percent were invalid if borrowers were forced or ``practically forced'' to agree to such terms.

The shares declined further in the past three months as the ruling Liberal Democratic Party drafted a bill to close a loophole letting non-bank lenders charge more interest than the 20 percent maximum for banks. Lawmakers are set to tighten consumer loan rules after high charges created a cycle of debt, where consumers borrow from one firm to repay another.

The party plans to cut the rate limit as early as 2009. Japanese non-bank firms operate in a so-called grey zone that permits interest as high as 29.2 percent if borrowers agree.

Acquisitions

Takefuji is also considering strategies to expand its customer base. The firm may use some of its cash pile for an acquisition, Kondo said.

Takefuji, which expanded without the backing of a big bank, accumulated 960 billion yen ($8.3 billion) of shareholder equity as of June 30, a strong financial backbone that has attracted hedge funds and other investors.

``After reaching the goal of 1 trillion yen in shareholder equity, we want to use it for more investments to develop new business lines,'' Kondo said, adding that the firm won't necessarily maintain 1 trillion of shareholder equity in future.

The lender's possible takeover targets include internet- related businesses and mail-order retailers, which may help it gain more customers, Kondo said, without giving specific names. ``We also need to consider expansion into secured loans and business loans to have a variety of products.''

Bidders

Two years ago, Takefuji attracted bidders such as Goldman Sachs Group Inc., the second-biggest U.S. securities firm by market value, and Newbridge, an investment arm of Texas-based buyout firm Texas Pacific Group, when the founder complied with a court order to divest to less than 25 percent his family-held stake. Takei was handed a suspended jail sentence in 2004 for ordering illegal wiretaps of journalists.

Takei's death on Aug. 10 at the age of 76 frees the family from the 25 percent limit. ``Takefuji can now be more flexible with its capital policy,'' said Minoru Hattori, an analyst at Okasan Securities Co. in Tokyo.

Canadian financier Peter Cundill in June increased his holding in Takefuji for the second time this year to 8.53 percent, making him the largest single shareholder in the lender, regulatory filings showed. The purchases raised investor speculation that Takefuji may become a takeover target again.

The Takei family including Taketeru Takei, a son of the founder and also a senior managing executive officer of Takefuji, holds a 24.88 percent stake, company documents show.

U.S.-based Mellon Bank NA holds 6.87 percent and is the second-largest shareholder in Takefuji. Zurich-based UBS AG holds 4.67 percent, according to data compiled by Bloomberg as of Sept. 29.

Takei's $5.6 billion fortune was second in Japan to Softbank Corp. founder Masayoshi Son's $7 billion, Forbes Asia said in its June 19 issue this year.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

Last Updated: October 2, 2006 03:57 EDT