UPDATE 2-Japan government panel warns against poison pills

(Adds details and background)

By Junko Fujita

TOKYO, June 11 (Reuters) - A panel backed by Japan's trade ministry said hostile takeovers could have a positive effect on company management, and using "poison pill" schemes to block such takeovers could hurt shareholder value.

A study panel set up by Japan's ministry of economy, trade and industry said on Wednesday the mere threat of hostile takeovers may inspire greater discipline in management. The panel also said takeovers could help boost value for shareholders.

The panel's report, compiled by about 30 industry experts, lawyers and bankers, was issued at a time when more Japanese companies are introducing defence measures against possible takeovers.

About 500 Japanese companies have introduced poison pill schemes since 2005, giving them the option to issue stock warrants to dilute the stake of hostile bidders, according to a report issued by Nomura Securities Co in May.

"Management should be never allowed to use defence measures just to protect themselves," the study group said in a statement. "Management should never stop acquisitions, some of which could help boost shareholders' value."

FUND PRESSURE

The report comes as Japanese companies are facing pressure from foreign funds to boost their returns.

British activist fund The Children's Investment Fund has launched a proxy fight aimed at getting support for its proposed changes at Electric Power Development Co (9513.T), an electricity wholesaler better known as J-Power. [ID:nT322830]

U.S. fund Southern Asset Management said on Tuesday it would vote against the re-election of NipponKoa Insurance Co Ltd's (8754.T) chief executive. Another U.S. fund, Steel Partners, recently helped oust the president of wig maker Aderans Holdings (8170.T).

Hiroaki Niihara, director for the ministry's corporate system division, said the report was not legally binding but would have certain impact in making decisions related to mergers and acquisitions. A ministry report was cited at a court previously, he said.

The number of companies with poison pills has surged, but are were some companies, such as cosmetic giant Shiseido (4911.T) and Internet access provider eAccess (9427.T), which have scrapped such protection. [ID:n172964]

The ministry set up the study group in 2004 to evaluate conditions for mergers and acquisitions.

Its members include Tsutomu Fujita, managing director at Nikko Citigroup Ltd equity research, Yasuo Kuramoto, director and vice chairman of Fidelity Japan Holdings K.K, and Taisuke Sasanuma, representative partner of Advantage Partners LLP.

The report also said shareholders should be the ones to decide on takeovers. It warns that a company's management should take responsibility for using defence measures and be held accountable for them, as cross-shareholdings could help a company gain support for the use of defence measures. (Editing by Quentin Bryar)