Shoei’s Biggest Investor Supports Other Bids for Developer in Hulic Merger

Shoei Co. (3003)’s biggest shareholder said a takeover offer by Hulic Co. (3265) undervalues the company and it will support a higher bid for the Japanese property developer.

“We will be supportive of any other bids that come from a company with stable financing,” said Charles de Lardemelle, a partner and portfolio manager at New York-based International Value Advisers LLC, which owns about 22 percent of Shoei. “With stable financing, the company is worth a lot more being offered today.”

Shoei (3003) shares jumped 4.5 percent in Tokyo trading, the most since Dec. 20 when the deal was announced, as investors speculated Japan’s biggest real-estate merger in at least a decade will unravel. The stock has lost 42 percent since the announcement that it will combine with Hulic, an agreement that needs approval from two-thirds of shareholders.

Shoei will swap three of its shares for each Hulic stock, according to the statement last month. It planned to transfer 493.9 million shares, worth 268.7 billion yen ($3.5 billion) when the transaction was announced, making it the biggest takeover among the nation’s developers in at least 10 years, according to data compiled by Bloomberg.

Hulic’s shares, which declined 0.6 percent today, climbed 8 percent since the announcement, while the Topix Real Estate Index (TPREAL) rose 5.6 percent.

Tomohiro Ito, a Shoei spokesman, and Osamu Wada, a Hulic spokesman, declined to comment.

‘Voted Down’

“Based on what the companies provided so far, I have to assume there is a good probability this will be voted down,” said Seth Sulkin, a representative director at Tokyo-based real- estate and asset manager Pacifica Capital KK, which owns shares of both Shoei and Hulic.

Shareholders will vote on the deal at the end of March, the Tokyo-based companies said in a statement.

International Value Advisers is crucial because it owns about one-fifth of shares in Shoei, Sulkin said.

“In order to vote it down, one-third of shareholders’ present at the meeting, including proxies, need to say ‘no,’” said Sulkin. “Considering that the largest shareholder has somewhere between 20 to 24 percent, it doesn’t really take that many other shareholders to say no.”

Bank Support

Japan’s smaller real estate companies are being starved of cash to develop projects because banks are reluctant to lend after loans climbed following a rush to amass land as prices rebounded in 2007 for the first time in 15 years. Debt at about a third of the 150 publicly traded Japanese real estate companies is more than twice their equity, according to data compiled by Bloomberg.

Shoei (3003) is in “financial trouble” and faced difficulty getting loans, Hulic said last month when the bid was announced.

Shoei said in a Nov. 29 Tokyo stock exchange statement it has the support of its main lender, Mizuho Corporate Bank, for “necessary funds for its operations” after it said losses for the year ended Dec. 31 will widen to 10.4 billion yen due to declining values of its real estate securities and assets. It also reduced the compensations for the president and the chief executive officer.

“We are hopeful other business opportunities may materialize at a price that reflects the true value of the company,” de Lardemelle said. “The company could have been more straightforward. We were definitely surprised by the terms of the merger and by the company’s difficult situation with the bank.”

To contact the reporters on this story: Kathleen Chu in Tokyo at

To contact the editor responsible for this story: Andreea Papuc at

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