Japan firms start to question poison pills

By Junko Fujita and Alison Tudor

TOKYO, May 8 (Reuters) - Cosmetics giant Shiseido (4911.T) and Internet access provider eAccess (9427.T) are among a handful of Japanese companies that have recently scrapped "poison pill" takeover defence schemes, bucking a trend that has helped shape Japan's reputation for being inhospitable to foreign capital.

Roughly 500 Japanese companies have introduced poison pill schemes since 2005, giving them the option to issue stock warrants to dilute the stake of a fund or company launching a hostile takeover.

The perceived threat of takeovers has heightened significantly in the past few years due to high-profile cases of foreign funds launching bids for Japanese companies and global consolidation in sectors such as steel.

Investors have generally frowned on poison pills because they tend to shield managers of poorly performing companies from the pressures of the stock market and in a broader sense have helped sour investors on corporate Japan.

"With these measures, companies have little pressure to improve management. They also have little incentive to boost their book value if they know they won't be bought," said Jun Nishizaki, chief portfolio manager at Nissay Asset Management.

But some companies have given investors hope by going against the trend.

Nomura Securities said in a report this week that 12 Japanese companies have dissolved their poison pills in the past two years, and that most of them did so out of concern such schemes would hurt their stock prices.

The abolishment movement seemed to gather momentum in the past month as Shiseido and eAccess pulled the plug on their defence schemes. Shiseido in particular is well known in Japan and its actions could influence other firms.

"We realised the best defence is to boost our corporate value, and we have done that," said a spokesman at Shiseido, whose stock has jumped 7 percent since the company made the announcement on April 30.

FOREIGN CAPITAL

Since 2005, the share prices of Japanese companies with poison pills have underperformed Japan's TOPIX index by about 4 percentage points in the first 120 business days after the introduction of the schemes, said Nomura analyst Kengo Nishiyama, the author of the report.

"Some companies have started asking themselves whether it would make sense to have those measures," Nishiyama said.

The proliferation of poison pill schemes has coincided with other events supporting the impression the Japanese stock market is not open to foreign investors.

The Japanese government last month rejected a request by The Children's Investment Fund (TCI) to allow it to double its stake in electricity wholesaler J-Power (9513.T), citing security concerns and the possibility power supplies could be disrupted.

That came on top of a court's decision last year to label Steel Partners an "abusive acquirer" in supporting a decision by Bull-Dog Sauce Co (2804.T) to use its poison pill to stop the U.S. hedge fund's takeover attempt.

eAccess explained its decision in the context of waning foreign interest in Japan.

"Foreign money has been leaving Japan because of the extreme defence measures taken by domestic companies, which have created the impression that we are in a closed market," eAccess said in a statement on April 17.

Nomura's Nishiyama also reckons barriers to investment have deterred foreign money, helping slice nearly 30 percent off the Nikkei average .N225 in the fiscal year ended March 31.

"There was a global stock market crash because of the U.S. subprime crisis but Japan's stock market fell more than it was hurt by subprime. And the recovery is slow," he said.

And for every company that decides to abolish a poison pill there seems to be at least another ready to install or renew one.

Akebono Brake Industry Co (7238.T) announced on Wednesday it would continue its takeover defence scheme to "prevent unappropriate investors from controling the company's important management decisions".

"The number of Japanese companies dumping poison pills is dwarfed by the number of new pills being installed," said Marc Goldstein, head of governance research for Risk Metrics in Japan.