Steel Partners wins landmark Japanese board ouster

By Edwina Gibbs and Aiko Hayashi

TOKYO (Reuters) - U.S. hedge fund Steel Partners helped oust the president and most of the board of Japanese wig maker Aderans Holdings on Thursday, the first time management of a Japanese firm has been ejected under pressure from an activist fund.

The news pushed Aderans shares up nearly 9 percent and marked a big win in Japan for U.S.-based Steel Partners, which owns 26.7 percent of the wig maker, one of the 30 or so Japanese companies it has been pressuring to improve shareholder returns.

The failure by Aderans to get President Takayoshi Okamoto and six other board members re-elected at its annual shareholders' meeting may also serve as a wake-up call for other underperforming Japanese firms.

"This is going to be a catalyst," said Yoshinori Nagano, chief strategist at Daiwa Asset Management.

Japanese companies fall far short of their counterparts in Europe and the U.S. on performance measures such as return on equity, and analysts say lax corporate governance standards that entrench management are largely to blame.

A small army of overseas funds including Steel Partners have been leading a charge in the past few years to hold managers accountable, but until now no fund had been able to rally the support of other minority shareholders to replace a board.

"By any standards to unseat seven members of the board is quite something," said Jonathan Allum, Japan strategist at KBC Financial Products. "It is an indication the Japanese corporate governance scene isn't quite the sort of wasteland that people had decided it was."

Steel Partners told Aderans in February it lacked confidence in its management and was disappointed with the company's deteriorating performance. It also suggested "strategic alternatives" including finding a buyer to take over the firm.

Aderans posted a 51 percent fall in operating profit for the year ended February 29 last month, citing tough competition in the Japanese market. It sees profit rebounding by a third to 5.4 billion yen, though, in the current business year.

HARBINGER OF CHANGE

Steel Parters has also taken on management at brewer Sapporo Holdings Ltd, where it is seeking a one-third stake, confectionery maker Ezaki Glico, false-teeth maker Shofu Inc and spice producer House Foods Corp.

It has had some success in getting firms to hike their dividends, but was slapped back last year when a Tokyo court supported the use of a "poison pill" takeover defense by sauce maker Bull-Dog Sauce Co to thwart the fund's bid.

The court labeled Steel Partners an "abusive acquirer" in that case, a phrase that has been cited often as evidence of the closed nature of Japanese markets, contributing to the dismal performance of Japanese stocks in the second half of 2007.

Blocking the reappointment of Aderans board members could help undo some of the negative sentiment among foreign investors towards Japanese shares and help encourage the country's fledgling shareholder activist movement, analysts said.

"In the past two to three years, management has increasingly given shareholders more attention, for example by raising dividends ... and this will accelerate the trend of management listening to shareholders," Daiwa Asset's Nagano said.