Cerberus COO, others sued by Japan firm for $560 mln

TOKYO, July 22 (Reuters) - The chief operating officer of Cerberus and two other individuals appointed by the U.S. private equity firm have been sued in Japan by a shareholder of one of its portfolio companies for $560 million in damages.

The lawsuit by Kokusai Kogyo Holdings Co (KKH) alleges that Cerberus COO Mark Neporent and two former directors of property developer Kokusai Kogyo Co (KK) sold assets and made other decisions that benefited Cerberus at the expense of KK's corporate value.

Cerberus rejected the allegations in the suit, which it said was aimed at compelling the U.S. fund to sell its majority stake to the founding family of KK.

Cerberus owns a 55 percent stake in KK, which operates hotels, golf courses and other leisure facilities and also provides bus and taxi services in Tokyo. The U.S. fund invested in the company in 2004.

KKH, headed by Takamasa Osano, nephew of the company founder Kenji Osano, owns the remaining 45 percent. Takamasa Osano is also president of KK, one of Cerberus's largest holdings in Japan.

KKH said in a statement that it filed the suit in January against Neporent, Kazuhiko Kawai and Toshikiyo Shimizu and that the first hearing was held on Tuesday at the Tokyo District Court.

"This lawsuit is entirely without merit," Cerberus said in an e-mailed statement on Wednesday. "Cerberus acquired a controlling stake in (KK) when the company was on the brink of bankruptcy and returned it to profitability."

Both Cerberus and KK declined to provide contact details for Kawai or Shimizu for comment. Kawai and Shimizu were not listed in a national phone directory.

Peter Duda, a spokesman for Cerberus, said the U.S. fund spoke for Neporent in its statement.

Hiroki Inoue, a spokesman for KK, declined to comment.

HIGHER INTEREST PAYMENTS

KKH said the directors decided to replace debts owed to Cerberus with a roughly 200 billion yen loan from a U.S. financial institution at a high interest rate. The higher rate and other expenses cost KK 25.5 billion yen, KKH said.

KKH also claims the directors sold shares in Imperial Hotel (9708.T) held by KK to property developer Mitsui Fudosan (8801.T) even though there was another potential buyer with a higher offer. It said the missed opportunity cost KK 12.3 billion yen.

"The defendants allowed Cerberus to drain KK's corporate value by selling away its valuable assets and impose unnecessary refinancing and other expenses on the KK group," Tadayuki Miyajima, executive managing director of KKH, said in the statement.

On the other hand, Cerberus said in its statement that its leadership of the company had provided substantial returns to all shareholders, including Osano and his family.

"In fact, this litigation appears to be the latest in a long series of efforts to compel Cerberus to sell its majority stake in the company to the Osano family," Cerberus said.

"Cerberus has consistently advised the Osano's that it has no intention, and no legal obligation to do so, despite the Osano's bad faith effort to force such a sale," the U.S. fund said.

KKH said the directors should also be held responsible for a 14.8 billion yen loss from a decision to use the proceeds from the sale of Imperial Hotel stock to redeem preferred shares issued to Cerberus instead of repaying debt.

The interest rate on KK's loans were much higher than the dividend yield on the preferred shares, KKH said.

The next hearing will be held on Oct. 1, according to Yoshihiko Fuchibe, a lawyer for KKH. (Reporting by Junko Fujita; Editing by Hugh Lawson)