Oji Paper Says Hokuetsu Takeover Chances Are Falling

Oji Paper Co., Japan's largest paper maker, said it will continue to seek a majority stake in smaller rival Hokuetsu Paper Mills Ltd. even as odds mount against the $1.4 billion hostile bid.

``At this point it seems impossible for us to buy 100 percent of Hokuetsu,'' Oji President Kazuhisa Shinoda said in a press briefing today. ``We will continue our fight for a majority stake though and to convince shareholders that our bid is in their interests.'' Oji has no plans to sweeten its offer, he added.

Hokuetsu last week rejected Oji's 800 yen a share offer and sold a 24.4 percent block of shares at a lower price to Mitsubishi Corp., Japan's largest trading company, to block it. Some 40 percent of shareholders oppose Oji's offer, Hokuetsu President Masaaki Miwa said yesterday, including Nippon Paper Group Inc. (3893) which has a stake of almost 9 percent.

Shinoda said he will meet with political and business leaders in Niigata, north of Tokyo, where Hokuetsu was founded. He may meet executives of local lenders Daishi Bank Ltd. and Hokuetsu Bank Ltd.

``Hokuetsu's profits are falling faster than competitors,'' Shinoda said. `Demand for paper will grow and Hokuetsu doesn't have the resources or the ability to beat increasing competition for raw materials. Hokuetsu has 4,000 hectares of forest overseas, while Oji has 152,000 hectares.''

Earnings Targets

Hokuetsu's target for earnings growth is optimistic based on recent performance and analyst forecasts, Oji said in a statement. The company forecasts current profit of 17 billion yen for the year ending March 2008, while analysts predict 10.2 billion yen, Oji said.

Hokuetsu reported net income of 746 million yen in the quarter ended June 30, down 33 percent from 1.1 billion yen in the same period a year earlier. Current profit fell 40 percent to 1.5 billion yen.

Oji said it doesn't plan to raise its offer after Tokyo-based Hokuetsu yesterday said the bid didn't reflect fair value.

``Oji may have to raise its offer price by the deadline of Sept. 4,'' said Morio Oshima, an analyst at Mizuho Investors Securities Co. ``In that case, Oji will need to explain why to its shareholders.''

Nippon Paper, Japan's second-largest producer, this week bought an 8.85 percent stake, a step Hokuetsu said it welcomed. Hokuetsu, Mitsubishi and Nippon Paper can work together to form a veto block of 33 percent and thwart any proposal requiring shareholder approval, even if Oji wins a majority.

To contact the reporter on this story: Junko Fujita in Tokyo at jfujita@bloomberg.net.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.