Cerberus Capital Management LP, the largest shareholder of Seibu Holdings Inc., will meet with executives of the hotel and rail operator today for the first time since the fund lost a fight for board seats, according to two people familiar with the situation.
Cerberus and Seibu will discuss corporate governance and the possibility of an initial public offering for Seibu, according to the two people, who asked not to be named because they aren’t authorized to discuss it publicly.
The New York-based fund, which failed in its bid to have eight directors elected to Seibu’s board on June 25, aims to improve profitability at Japan’s fourth-largest hotel operator before selling shares to the public. Seibu President Takashi Goto has said he won’t offer “any concessions” to Cerberus.
“It’s a good sign,” said Nicholas Benes, a representative director of The Board Director Training Institute of Japan. “It could be progress. Dialogue and discussion is all about being open-minded.”
Norinchukin Bank and the Development Bank of Japan Inc., Seibu’s largest lender, are also attending the meeting, according to the people familiar with the situation.
Spokesmen for Seibu, which is unlisted, and Cerberus declined to comment.
Quayle Loses Vote
Cerberus, with a 35.5 percent stake in Seibu, recommended executives including former U.S. Vice President Dan Quayle and former U.S. Treasury Secretary John Snow to the board. The fund’s representatives won 39.8 percent of the votes cast, while the hotel operator’s nominees all won at least 59 percent of the vote, according to a statement from Seibu the day after the shareholder meeting.
Yoshiaki Tsutsumi, who holds 36 percent of second-largest Seibu shareholder NW Corp., backed the hotel and rail operator. Tsutsumi amassed a $16 billion personal fortune while at the helm of Seibu and was named the world’s richest man by Forbes magazine in 1990.
Seibu has said it’s already “financially prepared” for an initial public offering, while Cerberus has said it’s willing to wait as long as three years and wants the company to improve earnings.
The Tokorozawa, Japan-based hotel and rail company had net income of 15.6 billion yen ($156 million) in the year ended March, compared with 8.4 billion yen a year earlier, with sales of 459 billion yen, according to the company.
$1.2 Billion Investment
Stephen A. Feinberg’s fund spent about 120 billion yen acquiring its stake in Seibu, which was delisted in 2004 for breaking exchange rules by misstating stakes. The investment compares with the $7.4 billion it spent to buy an 80.1 percent stake in Chrysler LLC in 2007.
The fight for control at Seibu shows the challenge overseas private-equity funds face in Japan, where attempts by foreign investors to gain board representation have mostly been beaten back.
T. Boone Pickens gave up his attempt to gain a board seat in the 1990s at Koito Manufacturing Co., while Christopher Cooper-Hohn’s Children’s Investment Fund Management UK LLP failed in 2008, as did Warren Lichtenstein’s Steel Partners in 2010 with separate Japanese companies.
Prince Hotels Inc., owned by Seibu, runs a chain of 50 hotels in Japan and around the world, including the Hawaii Prince Hotel Waikiki. Seibu got 155 billion yen, about a third of its revenue of 459 billion yen, from its hotel and leisure businesses in the year ended March, according to the company.
Cerberus published a list of nine topics earlier this month that it wanted to raise at the shareholders meeting, including failures to meet profit targets, lack of comparisons of results with other companies in the industry, and lack of disclosure on its operations in Hawaii.
Cerberus, which raised its stake in Seibu in May, led a 2006 bailout of the seventh-largest railway operator in the Tokyo area with Nikko Principal Investments Japan Ltd.
The hedge fund, which announced a tender offer in March to boost its stake in Seibu, ended up buying 10 million shares, 3.04 percent of the amount outstanding.