April 14 (Bloomberg) -- Seibu Holdings Inc., operator of Japan’s biggest hotel chain, priced a 44.5 billion yen ($438 million) initial public offering at the bottom of its planned range after two IPOs flopped last month.
The price was set at 1,600 yen a share, according to a filing today. The deal values the company at 547.4 billion yen, about 33 times projected profit for the year ended March.
Seibu, which had disagreements with its biggest shareholder Cerberus Capital Management LP, sold the shares at 30 percent less than an indicative price announced last month. Takashi Goto, president of the hotel and rail operator, has pushed to proceed with the IPO, while Cerberus said it wanted to wait for a higher price and ultimately decided not to offer any shares in the sale.
“I think this is reflective of poor sentiment for Japan’s IPO market,” said Benjamin Collett, Hong Kong-based head of Asian equities at Sunrise Brokers LLP. “They have to price it lower subject to demand, which makes the chances of the price going up post-IPO higher.”
The company is selling 27.826 million shares, an 8 percent stake, held by its other main shareholders. A total of 18.1 million shares will be sold in Japan and 9.7 million overseas. The company plans to debut on the Tokyo Stock Exchange first section on April 23, it said.
The 1,600 yen price compares with the 1,400 yen a share Cerberus paid to buy stock from shareholders last year when it boosted its stake to 35.5 percent.
Seibu, which isn’t selling shares, had planned to price the stock from 1,600 yen to 1,800 yen each, it said last week.
The transaction comes after Japan Display Inc. dropped 15 percent in its Tokyo debut last month and Hitachi Maxell Ltd., an electronics and memory storage manufacturer, fell 14 percent below its IPO price a day earlier.
Seibu’s net income for the year ended March probably rose 4.8 percent to 16.4 billion yen, or 47.81 yen a share, the company said April 2.
Imperial Hotel Ltd., which runs one of Tokyo’s largest hotels, trades at about 56 times earnings, while East Japan Railway Co., the nation’s biggest train line operator, is valued at 15.1 times, according to the earnings forecasts released by the companies in January.
Seibu, which delisted in 2004, is returning to public markets after Goto prevailed in a fight with New York-based Cerberus last year over strategy and board representation.
Cerberus’s bid to have executives, including former U.S. Vice President Dan Quayle and former U.S. Treasury Secretary John Snow, elected to the company’s board was voted down at a June shareholder meeting. The two sides brought in lawyers after discussions broke down and only resumed direct talks in December, according to two people familiar with the situation.
Cerberus, which owns 35.5 percent of Seibu, had suggested the company sell its professional baseball team and some less-used train lines. Goto rejected the ideas. He got public support from Prime Minister Shinzo Abe’s Chief Cabinet Secretary Yoshihide Suga, who said in March last year that Seibu plays an important role in public transport and its baseball team has “a lot of fans.”
Seibu is betting on growth at its hotel and real estate businesses as a weaker yen unleashes a tourism boom and the capital prepares to host the 2020 Summer Olympics.
Goto focused his pitch to institutional investors on the domestic hotel business, which accounted for 17 percent of operating profit in the latest reporting period. The group’s larger transportation business, which generates almost half of total operating income, is the slowest-growing division.
Abe’s policies to bolster economic growth by pushing down the yen helped raise inbound visitors to more than 10 million for the first time last year. That’s helping Seibu fill rooms at properties such as Shinagawa Prince Hotel, which is triple the size of the Waldorf Astoria in New York.
“Tokyo is growing and there is a shortage of good hotel space,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $3 billion in assets. “They’ve got some good assets to play with. It has a lot of potential with the right management.”
Operating income at Seibu’s domestic hotel business jumped 49 percent to 6.7 billion yen in the nine months to Dec. 31, while the transportation division’s profit on that basis rose 1.6 percent to 18.7 billion yen.
Japanese stocks are suffering the biggest slump among developed markets this year. The Topix index has fallen 13 percent this year, emboldening short sellers whose trades made up as much as 36 percent of daily Tokyo Stock Exchange volume last month.
“It’s a case of bad timing,” said Minoru Matsuno, president of Value Search Asset Management Co. in Tokyo. “The market isn’t good for IPOs currently.”
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