Cerberus Plan to Boost Seibu Control Rejected by InvestorsChris Cooper and Kiyotaka Matsuda
Seibu Holdings Inc. shareholders rejected Cerberus Capital Management LP’s candidates to the board, thwarting the private-equity firm’s attempt to boost control of the Japanese rail and hotel operator.
Cerberus, Seibu’s largest shareholder with a 35.5 percent stake, had recommended Dan Quayle, former U.S. Vice President, John Snow, former U.S. Treasury Secretary, and six others become directors at the unlisted company. The plan was blocked by investors at Seibu’s annual shareholder meeting near Tokyo today, which lasted more than four hours and had a record number of participants.
The plan was opposed by Seibu President Takashi Goto and investors such as Yoshiaki Tsutsumi, once the world’s richest man, who support the company’s management. Prime Minister Shinzo Abe has called on Japanese companies to open up boardrooms and billionaire investor Daniel Loeb is trying to force change at Sony Corp.
“Overseas funds that invest in Japan usually find things don’t go that well,” Mitsushige Akino, who oversees the equivalent of about $500 million in assets in Tokyo at Ichiyoshi Investment Management Co., said before investors voted. “Shareholders are seen as just one of several stakeholders, including banks and employees.”
During the meeting, Seibu’s Goto confirmed his opposition to the Cerberus plan. More than 900 shareholders attended the meeting, compared with 363 at last year’s event. The meeting beat the previous record for duration, 154 minutes in 2008, as Goto answered questions from investors before the vote on directors.
Stephen A. Feinberg’s fund has spent about 120 billion yen ($1.2 billion) building its stake in Seibu, which was delisted from Tokyo’s stock exchange in 2004 for breaking exchange rules by misstating stakes. In comparison, Cerberus oversees more than $20 billion in investments and spent $7.4 billion to buy an 80.1 percent stake in Chrysler LLC in 2007.
“They took a very hostile approach,” Louis J. Forster, a senior managing director at Cerberus, told reporters in Tokorozawa, near Tokyo, after the meeting. “Seibu is a big company and is a great company and can do much better.”
In addition to Quayle, chairman of Cerberus Global Investments, and Snow, Cerberus had recommended directors including Hirofumi Gomi, a former commissioner of Japan’s Financial Services Agency, Yuji Shirakawa, former chairman of Citigroup Global Markets Japan Inc., and Forster.
Cerberus in 2006 led a bailout of Seibu, the seventh-largest railway operator in the Tokyo area by ticket sales, with Nikko Principal Investments Japan Ltd. Cerberus had said it’s willing to wait as long as three years for an initial public offering of Seibu, while the Japanese company said it’s already “financially prepared.”
The outcome of the shareholders’ meeting is “good for Seibu in the medium to long term,” Goto said. “We want to get ourselves into a good position to list. We believe Cerberus wants the same thing.”
Seibu management submitted its own list of candidates for the board who will be more profitable for the company, Shuhei Akasaka, a spokesman for the company, said last week. Four directors and two auditors proposed by Seibu were elected by the shareholders today.
That list and Seibu’s current business strategy was backed by Tsutsumi, who holds 36 percent of Seibu’s second-largest shareholder NW Corp. The investor 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 lowered earnings forecasts on March 26, five days before the end of the fiscal year, cutting its estimate for operating profit before interest, taxes, depreciation and amortization by 3 billion yen to 78.1 billion yen, from at least 81.3 billion. Two months later, its reported earnings beat that prediction by 2.1 billion yen.
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.
The resistance Cerberus faced shows domestic opposition to the influence of foreign funds remains strong. 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.
Prime Minister Abe wants to add outside directors to companies to increase independence and aims to double foreign direct investment in Japan to 35 trillion yen by 2020, according to the government’s strategy for economic growth.