UPDATE 2-Japan shareholders make history with merger veto
(Recasts, writes through with comments)
By Nobuhiro Kubo and Edwina Gibbs
OYAMA, Japan, Feb 22 (Reuters) - Shareholders of steel firm Tokyo Kohtetsu Co. (5448.Q) on Thursday blocked a takeover by Osaka Steel Co. (5449.OS), the first time in Japan shareholders have vetoed a merger approved by the companies' boards.
Investment fund Ichigo Asset Management launched the rare proxy fight against what it saw as an unfair share swap ratio for Tokyo Kohtetsu, a small but highly profitable maker of steel sheets and H-beams.
"With this vote, Japan's some 40 million shareholders will be encouraged to participate in enhancing corporate value," Ichigo Chief Executive Scott Callon told a news conference.
Unlike in the West, where shareholder revolts are not unusual, Japan's corporate culture has been traditionally based on consensus between management, employees and customers, with shareholders having little say in shaping policy.
It was a tough vote, with 55.9 percent for the merger, 42.1 percent against, and the rest abstentions. The move would have needed a two-thirds majority vote to pass.
"A merger would have been good for the company but there was no choice but to vote against it. I can't understand how they arrived at such a share swap ratio," said one shareholder who travelled all the way from Kyoto to Tochigi prefecture, north of Tokyo, for the vote.
Ichigo, a one-year-old fund whose portfolio of tiny Japanese companies is worth 3 billion yen ($25 million) and which owns 12.6 percent of Tokyo Kohtetsu, had not been against the takeover per se, only against the merger ratio.
It said Osaka Steel was offering Tokyo Kohtetsu's shareholders a premium of 0.3 percent to the one-month average share price prior to the announcement of the proposed deal.
It gathered proxy votes from over 500 individual shareholders, as well as votes from institutional investors to block the move.
A SIGN OF THE TIMES
The watershed shareholder vote comes as the deal-making landscape in Japan shifts dramatically.
Mergers and acquisitions are sharply on the rise and activist hedge funds are forcing companies to increase returns and seek white knights. Japan has also recently seen the advent of management buyouts and hostile takeover attempts by established firms.
"I think (the vote) will have a positive impact on future M&A, it sends the message that such unfair offers are unacceptable," said Yoshihisa Okamoto, senior vice president at Fuji Investment Management.
Tokyo Kohtetsu President Shunsuke Hirashima told the shareholders meeting the company would continue to do business on its own and would not consider a new share swap ratio with Osaka Steel.
Callon, formerly a chief market strategist and derivatives trader at Morgan Stanley and who has lived in Japan for 18 years, said Ichigo may increase its stake in Tokyo Kohtetsu and would not sell its shares at current prices.
Shares in Tokyo Kohtetsu ended up down 0.3 percent at 605 yen after the vote.
The merger was seen as a key part of the realignment of Nippon Steel Corp.'s (5401.T) electric furnace affiliates. Osaka Steel is majority-owned by Nippon Steel, the world's second-biggest steel maker.
Both Nippon Steel and Mitsui & Co. (8031.T), Japan's second-largest trading house and Tokyo Kohtetsu's biggest shareholder, said they were disappointed the takeover was not going ahead.
"We believe that if Tokyo Kohtetsu had become a wholly-owned unit of Osaka Steel, then management resources would have been used efficiently and it would have been able to build up its competitiveness and ability to adapt," Mitsui said in a statement. (Additional reporting by David Dolan, Nathan Layne, Sachi Izumi and Reiji Murai)
