Seibu Pushes IPO Without Cerberus After Japan Display SlumpChris Cooper, Kiyotaka Matsuda and Shigeru Sato
Seibu Holdings Inc. President Takashi Goto is seeking to relist Japan’s biggest hotel chain after a nearly 10-year hiatus. Now he needs to court investors made wary by two other recent IPOs that flopped.
The hotel and rail operator cut the size of the offering at least 73 percent after investors balked at the valuation and its biggest owner opted not to participate. Seibu is selling shares after Japan Display Inc. and Hitachi Maxell Ltd. slumped on their trading debuts last month.
Goto, a 65-year-old former banker, visited investors in the U.S. and Europe last week and highlighted the prospects of Seibu’s hotel and real estate businesses, said people with knowledge of the matter. The company also has a slow-growing transportation unit and a professional baseball team that’s currently last in its league -- an asset main shareholder Cerberus Capital Management LP previously suggested Goto sell.
“The current environment is quite challenging,” said Mitsushige Akino, who oversees the equivalent of $500 million in assets at Ichiyoshi Investment Management Co. in Tokyo. “Investors aren’t looking at the individual company but the atmosphere in the market. It’s turned against IPOs.”
Seibu’s owners are seeking as much as 50.1 billion yen ($491 million) from a sale of shares at 1,600 to 1,800 yen each, lower than the 2,300 yen indicative price announced last month, according to an April 9 filing. The company isn’t raising any money as part of the offering.
Cerberus, the New York-based private equity fund that owns 35.5 percent of Seibu, decided not to sell shares in the offering, the filing shows. Seibu will set the final price for the IPO on April 14 and will begin trading on April 23, according to an earlier statement from the company.
The company, which delisted in 2004, is returning to public markets after Goto won a fight with Cerberus last year over strategy and board representation. Goto said last April he won’t offer “any concessions” after the New York-based fund listed nine topics it wanted to discuss at an investor meeting, including failures to meet profit targets and lack of disclosure on Seibu’s loss-making Hawaiian hotels.
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, the people with knowledge of the matter said, asking not to be identified as the details are private.
Seibu declined to comment. Cerberus spokesman Peter Duda also declined to comment.
Cerberus had suggested the company sell its hometown baseball team and some less-used train lines. Goto rejected the ideas. He got public support from 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.”
The company owns the Saitama Seibu Lions, currently the lowest-ranked team among six clubs in the Pacific League, one of Japan’s two professional baseball leagues. The financial performance of the Lions isn’t detailed in the IPO prospectus.
Traffic on Seibu’s 13 railway lines varies widely, the prospectus shows. Three of the five stations on the Chichibu line, located among the Tokyo suburbs in Saitama prefecture, record less than 500 passengers a day on average, while the busiest stop on its Ikebukuro line in the capital sees more than 479,000 daily.
“Once Seibu goes public, it needs to show the market a clear picture of its future business growth,” said Hideaki Miyajima, a commerce professor at Tokyo’s Waseda University. “The market will be closely looking at the company’s corporate governance and shareholder returns.”
Free Train Rides
Seibu is listing as Japanese stocks suffer the biggest slump among developed markets this year, with the Topix index falling 12 percent since the beginning of January. The declines are emboldening short sellers whose trades made up as much as 36 percent of daily Tokyo Stock Exchange volume last month, compared with an average 25 percent over the past year.
Japan Display, a supplier of screens for Apple Inc. devices, slumped 15 percent on its March 19 Tokyo trading debut after a $3.1 billion initial public offering, the biggest in Japan since Suntory Beverage & Food Ltd.’s $3.8 billion offering last year. The day before, electronics maker Hitachi Maxell tumbled 14 percent below its IPO price on its first day of trading. Both are still trading below their offer prices.
Still, individual investors may be persuaded to buy Seibu stock because of the perks the company gives shareholders, said Minoru Matsuno, president of Value Search Asset Management Co. in Tokyo. Holders of more than 40,000 shares will get free train and bus passes, as well as other Seibu discounts, according to the prospectus.
Seibu’s net income for the year ended March probably rose 4.8 percent to 16.4 billion yen, the company said April 2. Based on the high end of the IPO price range, that would value the company at about 38 times earnings.
Imperial Hotel Ltd., which runs one of Tokyo’s largest hotels, trades at 57 times earnings while East Japan Railway Co., the nation’s biggest train line operator, is valued at 15 times, according to the earnings forecasts released by the companies in January.
Goto is focusing his pitch to institutional investors on the domestic hotel business, which is part of a hotel and leisure division that accounted for just 17 percent of operating profit in the nine months ended Dec. 31. The group’s larger transportation business, which includes its railways and generates almost half of total operating income, is seeing declining sales.
Operating income at Seibu’s domestic hotel and leisure group jumped 48 percent to 6.7 billion yen in the nine-month period, while the transportation division’s profit on that basis rose 1.9 percent to 18.7 billion yen, according to the prospectus.
The Japanese prime minister’s economic policies, known as Abenomics, have contributed to an 18 percent drop in the yen against the dollar since he came to power in December 2012. That’s helping fill rooms at Seibu properties such as the Shinagawa Prince Hotel, which is triple the size of the Waldorf Astoria in New York, as Tokyo prepares to host the 2020 Summer Olympics.
In September, Abe left a G-20 summit in Russia to personally make a pitch to International Olympic Committee members ahead of the final vote on the venue for the 2020 games. He broke into song during a presentation to the IOC’s evaluation panel in March last year in which he said hosting the event was a long-held dream. Tokyo was awarded the games in September.
Meanwhile, land prices in Tokyo rose last year for the first time in six years, driven by the prime minister’s promise to loosen business regulations and increase government support for industry.
“Abenomics brought in a weaker Japanese yen, more foreign tourists and pushed up Tokyo’s land prices,” said Tsuyoshi Ueno, a senior economist at NLI Research Institute in Tokyo. “Along with the 2020 Olympics Games in Tokyo, they are all a tailwind for Seibu’s debut.”