Nippon Paper Seeks Hokuetsu Stake to Block Rival Oji

Nippon Paper Group Inc. (3893), Japan's second-largest paper producer, said it's seeking as much as 10 percent in Hokuetsu Paper Mills Ltd., in an attempt to thwart a hostile bid by larger Oji Paper Co.

Nippon Paper said it holds 8.49 percent of Hokuetsu's shares, a stake it began building on July 23 when Oji announced a $1.4 billion takeover bid that pit two members of the benchmark Nikkei 225 Stock Average against each other for the first time.

``We made an independent decision to purchase the stake,'' Nippon Paper President Masatomo Nakamura said at a Tokyo press conference. ``Oji's hostile bid could disrupt not only Hokuetsu's management and employees but also the industry.''

Nippon Paper said it aims to own a stake of no more than 10 percent in Hokuetsu after that firm sells shares to trading house Mitsubishi Corp. next week as part of its defense. An alliance of the three would make it difficult for Oji to acquire control because they would hold more than a third of Hokuetsu's equity and have veto rights against a majority shareholder.

``Anything might happen now,'' said Katsuhiko Ishibashi, an analyst at Deutsche Securities Co. in Tokyo. ``This is a negative Oji must challenge. It's interesting to see this old-line industry jumping into the takeover market.''

Oji Paper was founded in 1873 by Eiichi Shibusawa, an adviser to the ruling Tokugawa shogun. The company controlled as much as 80 percent of paper production in Japan until 1949 when it was split into three parts, one of which became Nippon Paper.

Nippon Paper said it's being advised by Morgan Stanley. Nomura Holdings Inc. (8604) is advising Oji on the first hostile takeover attempt by one of Japan's biggest and oldest industrial companies. Credit Suisse Group is advising Hokuetsu.

Global papermakers, hit by rising electricity and chemicals prices, are trying to stem a decline in paper prices. The wholesale price of A4-size copier paper, an industry benchmark, has fallen 21 percent in the past five years.

Hokuetsu shares rose 16 yen to 830 yen in Tokyo today, 3.8 percent above Oji's 800 yen offer price.

Hokuetsu was not immediately available for comment.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at at thyuga@bloomberg.net Kanoko Matsuyama in Tokyo at at Kmatsuyama2@bloomberg.net.

To contact the editor responsible for this story: Ben Richardson at at brichardson8@bloomberg.net

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