Steel Partners withdraws Sapporo offer

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Steel Partners underlined the waning interest of activist shareholders in Japan as it withdrew its offer to raise its stake in Sapporo Holdings, the beer company with which it has been in confrontation with for more than two years.

The US hedge fund, which in Japan came to epitomise aggressive, Anglo-Saxon shareholder activism, said it was withdrawing its proposal to increase its stake in Sapporo from 18.6 per cent to 33.3 per cent at Y875 a share, which would have cost it 50.7bn yen ($550m).

The shares closed down nearly 10 per cent at Y381.

Steel Partners’ decision comes as hedge funds have been scaling back their investments in Japan in the face of falling share prices and increasing redemption demands from their investors.

Steel Partners, one of the most active foreign investors during the past several years, has reduced the number of companies in which it invests from about 30 to about 20.

Steel Partners said its decision on Sapporo was because of “the company’s ever-worsening financial and operational performance and continued refusal to negotiate the terms of an acceptable offer to shareholders”.

Warren Lichtenstein, Steel’s founder, cited as “management mis-steps” Sapporo’s fall from third to fourth largest brewery in Japan, its loss of market share in the “super premium” beer segment and the termination of its contract with Diageo to distribute Guinness in Japan.

Kengo Nishiyama, senior strategist at Nomura in Tokyo, said: “The change in the environment since last autumn has made it difficult for the investors [in Steel Partners] to wait for its strategy to bear fruit.”

Sapporo responded with indignation to Steel Partners’ comments, saying it was “extremely regrettable” that the hedge fund’s letter contained one-sided criticism of management and a number of factual errors that could cause misunderstanding.

It said: “Our business has seen two terms of increasing operating, pre-tax and net profits, so we wonder what [Steel Partners] are referring to when they say our performance continues to deteriorate”.

Many foreign hedge funds, which piled into Japan between 2005 and 2007, have suffered significant losses on their investments. When Steel Partners made its initial offer two years ago to increase its stake in Sapporo to 66.6 per cent at Y825 per share, Sapporo’s share price was trading at Y791.

Mr Nishiyama said: “Activists funds have not reaped the kind of returns they sought despite their efforts to transform management.

“For those who were hoping that funds would change companies, the result is depressing”.

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