Japanese government spared Shinsei poison pill clash
Late Wednesday night, Tokyo time, Japan was less than 24 hours away from the most crucial shareholder showdown in the history of its financial services industry: a proxy battle over the future of Shinsei Bank and the climax the industry’s very first hostile takeover attempt.
Then very suddenly it wasn’t. Shinsei’s poison pill defense strategy was abruptly withdrawn, Thursday’s extraordinary general meeting was called off, and the way apparently opened to breaking the great hostile taboo in Japan. However, it is far from clear whether the forces of change or the behind-the-scenes machinations of ancient Japan won.
The latest turmoil around Shinsei – the institution born out of the 1998 collapse and forced nationalization of the Long Term Credit Bank – began in September with a hostile bid of $ 1.1 billion.
The move came from one of the most controversial and successful figures in Japanese finance: online brokerage mogul and CEO of SBI, Yoshitaka Kitao. Its taste for disruption is unwavering and its stated goal over the past few years has been to make its various online businesses Japan’s “fourth mega-bank”.
This ambition, of which effective control over Shinsei would be the keystone, has so far involved the purchase of a series of minority stakes in various troubled regional banks – with, many observers suspect, a nod of the head. tacit political gratitude.
At the time of SBI’s move to Shinsei, the Kitao-based company held 20.3 percent in its career. Its rather unconventional take-over bid contemplates adding an additional 27.6% to bring the total stake to 48%, just below the 50% level that would avoid a lengthy approval process and capital requirements. expensive.
Shinsei’s response was to come up with a defense against poison pills, which the SBI tried to block in court, but failed. Shareholders were due to vote on November 25 after Shinsei appeared to fail in his race to find another buyer.
The natural vote of pro-governance progressives could be against any form of poison pill because it can strengthen management and prevent shareholders from profiting from a takeover offer. But if successful, SBI’s offer would give Kitao inexpensive and unaccountable control over a large bank and create a corporate structure that could disadvantage minority shareholders.
Given this and other factors, proxy advisers ISS and Glass Lewis, counterintuitively, had made recommendations in favor of the poison pill. Some domestic and foreign investors also supported it. But there were more twists to come.
Shinsei’s story led the Japanese government to own 22% of the bank’s voting rights through two entities – the Resolution & Collection Corporation and the Deposit Insurance Corporation.
The RCC and DIC are obligated to return around 350 billion yen to taxpayers for the initial bailout, but could only do so by leaving Shinsei at a price of 7,450 yen per share. SBI’s offer, even with its premium, amounted to 2,000 yen, which means the government is unlikely to sell there. Nonetheless, people close to the RCC and DIC said this week they would vote against the poison pill – a position some have interpreted as a sign that there is now a government faction willing to accept hostile takeovers. .
The prospect of the RCC, DIC and Kitao teaming up to successfully vote against Shinsei’s poison pill therefore appears to have forced the bank to withdraw the defense prior to this humiliation. Some activist investors, who fought the intransigence of Japanese companies for many years, howled in triumph and said proxy advisors were taken on the wrong side of history.
Finally, they argued, the fear of state disapproval of hostile bids, which has long constrained companies and private equity, should now disappear and Japan would see a market long absent from the market evolve. control of companies.
They might be right, but skeptics suggest this outcome might look more plausible with a hostile takeover that raises fewer questions about the timeliness of its end result. Particularly troubling is the government’s implicit approval of a deal that does not sound like a step forward in governance or protecting the interests of minority shareholders.
CLSA analyst Nicholas Smith notes that there are a number of former senior officials – and potentially very influential ones – drawn primarily from the financial services regulator on the board of SBI and its group of companies. “I’m afraid this can be seen,” says Smith, “like a stick from Brighton Rock with“ conflict of interest ”written all the way through.