Steel Partners says recommends sale of Sapporo

By Junko Fujita

TOKYO (Reuters) - U.S. hedge fund Steel Partners, the largest shareholder in Japan's No.3 beer maker Sapporo Holdings said on Tuesday it has recommended the sale of the firm or parts of its businesses as its earnings have deteriorated.

In the latest development in a stand-off that has lasted over a year, the fund said other strategic alternatives for the brewer include hiring consultants to draw up a plan to improve its operational results and margins.

The move by Steel Partners, which has taken substantial stakes in a variety of Japanese firms and pressured them to boost returns to shareholders, comes after the fund succeeded in ousting the management of wig maker Aderans Holdings and won a seat on a new board that will seek approval at a shareholders' meeting next month.

Shareholders of Sapporo approved anti-takeover measures in March to defy Steel Partners' attempt to boost its stake.

Sapporo's management has neglected to boost shareholder value and seeks to protect its position with defence measures, a person familiar with the fund's proposals said on Tuesday, adding that the fund has lost patience with the company. He asked not to be named because of the sensitivity of the issue.

In April, Sapporo posted 3.34 billion yen ($31.20 million) in net loss for the three months ended March 31.

Suntory Ltd, a privately owned beer maker which had been Japan's No.4, overtook Sapporo in beer shipments in April, according to an industry source.

Steel Partners, which submitted its proposals in a letter to Sapporo on Tuesday, is now considering possible measures against the management, he said.

The fund recommended Sapporo to hire an investment banker to explore the sale of the company or parts of its business.

The Steel Partners group currently owns 18.6 percent of the beer maker. It is seeking a one-third stake, which would give it a veto over management decisions.

Responding to Steel Partners in a statement on Tuesday, Sapporo said it will continue talking with the fund about its attempt to boost its stake. Sapporo will also study the contents of the fund's letter, it said.

Steel Partners first proposed buying 66.6 percent of Sapporo shares for 825 yen apiece in February 2007 but revised that to seek 33.3 percent of voting rights at an increased price of 875 yen per share.

The latest offer price is 22.5 percent higher than Sapporo's closing share price of 714 yen on Tuesday before the announcement.

Steel Partners first bought Sapporo shares in June 2004 at 384 yen a share. ($1=107.06 Yen)

(Additional reporting by Sachi Izumi; Editing by Michael Watson)