June 12 (Bloomberg) -- Warren Lichtenstein's Steel Partners Japan Strategic Fund (Offshore) L.P. will invest in Japanese companies ``more and more'' as they are still undervalued, the U.S. investor said in his first press briefing in Tokyo.

Steel Partners will continue to invest in Japanese companies that are fundamentally sound, have good cash flow and which would benefit from consolidation, Lichtenstein, 41, said.

``After 15 years of recession, Japan is now waking to a completely different world,'' Lichtenstein said. ``As long as we can find interesting opportunities to invest our capital to get good risk-adjusted returns, we will do it more and more.''

Steel Partners has made a series of failed takeover bids in Japan since 2003 and invested in more than 40 companies, including Sapporo Holdings Ltd., seeking management changes and higher dividends. While the fund has made money, acquisition attempts have been thwarted as Japanese firms turn to defenses including poison pills and friendly tie-ups.

``Their main goal seems to be internal rates of return of about 30 percent and exiting within three years,'' said Masaki Iso, who overseas about $7.3 billion as head of Japanese equities at Yasuda Asset Management Co. in Tokyo. ``Other shareholders have reacted adversely to their sudden demands for dividend increases without any long-term plan to boost profitability.''

The fund has about $3 billion invested in an eclectic mix of stocks, from wigmakers to a producer of steak sauce. Value or activist investors, such as Steel Partners and San Diego-based Brandes Investment Partners L.P., have been targeting Japanese stocks trading at or below their price-to-book ratios.

The measure is used to compare a stock's market value to its book value, calculated by dividing the stock price by the latest quarter's book value per share. A lower ratio could mean the stock is undervalued. About 450 of the 1,731 companies included in the benchmark Topix have price-to-book ratios of 1 or less.

Attempted Takeovers

Steel Partners Japan failed last year in its bid to buy control of noodle maker Myojo Foods Co. after Nissin Food Products Co., Japan's largest maker of instant noodles, made a higher counter-offer. The fund still managed a 73 percent return on its investment, based on the closing share price on the day Nissin made its takeover bid.

Sapporo, Japan's third-largest brewer, won shareholder approval in March to take steps designed to thwart a hostile takeover bid led by Steel Partners. More than two-thirds of attending shareholders or proxies supported the anti-takeover measures, Sapporo's chief executive officer Takao Murakami said.

Sapporo, which makes Yebisu beer and distributes Guinness stout and Beringer wines in Japan, adopted revised defense measures after Steel Partners said it wanted to raise its stake.

Request Denied

The management of Tokyo-based Bull-Dog Sauce Co. last week rejected a takeover bid by Steel Partners Japan and will seek shareholder approval later this month to issue equity warrants as a defense. Steel Partners Japan today asked for a meeting with employee representatives and questioned the board's opposition.

The fund also made an offer last month for Tenryu Saw Manufacturing Co. The Shizuoka prefecture-based maker of woodworking, stone- and diamond-cutting saws said last week its labor union opposes the bid. It will reserve judgment while awaiting answers to questions sent to Steel Partners. Steel Partners said today it responded to the firm, asking for direct talks with management.

Other activist funds have been making headlines recently. Singapore-based Ichigo Asset Management in February led Japan's first successful shareholder revolt, blocking the takeover of a specialty steelmaker by a unit of Nippon Steel Corp. Ichigo argued the offer undervalued the target firm.

Undervalued Companies

Led by former Morgan Stanley banker Scott Callon, Ichigo invests in Japanese companies with a market value less than 20 billion yen ($170 million) that aren't tracked by brokerages and which Callon believes are undervalued.

Brandes Investment has taken stakes in more than 10 Japanese companies including consumer lenders Takefuji Corp., Acom Co Ltd. and Promise Co.

Lichtenstein and U.S. billionaire Carl Icahn last year led a campaign to boost KT&G's stock price, asking management to spin off its ginseng and real estate assets, increase dividends and buy back shares. They threatened a $10 billion takeover of the tobacco company if their demands weren't met.

The U.S. fund managers ended their seven-month alliance in August after KT&G agreed to return $2.9 billion to shareholders through stock buybacks and dividends.

Lichtenstein graduated from the University of Pennsylvania in 1987, and opened a Steel Partners unit in Japan in 2002. He is co-founder of Steel Partners II, L.P. and is president and chief executive officer of Steel Partners, Ltd., a management and advisory company that provides services to various Steel Partners entities.

To contact the reporters on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net.

Last Updated: June 12, 2007 05:29 EDT