The electronics conglomerate aiming to become a global leader in cloud computing is entangled in a bidding war that has produced multiple counter-offers and now places a 160 per cent premium on its tiny target — the lossmaking Tokyo-listed chip trader Solekia.
Despite four years of pro-investor reforms under Prime Minister Shinzo Abe, analysts say the tussle has exposed a Japanese governance culture at major corporations that still places historically cosy business relationships above strategic logic and shareholder interest.
The unexpected challenge to the status quo and management complacency comes from Beji Sasaki, the 61-year-old native of a small volcanic island and chairman of a company, Freesia Macross, that designs log houses. His business record includes a string of distressed-asset takeovers, a hefty collection of engineering patents filed by him personally and a recently established kimono fashion brand.
Two years after the introduction of a corporate governance code specifically intended to jolt companies into improving returns to shareholders, Mr Sasaki says managements are still being allowed to get away with running companies on rock-bottom valuations.
Before he swooped in early February, Solekia was trading on a treasury-adjusted market capitalisation of just ¥1.68bn ($15m) — less than a third of its book value and less than half its ¥3.41bn cash in hand. It was not alone: despite a sustained market rally since 2013, some 45 per cent of the constituents of the Topix stock index have market valuations below their book value and dozens are trading below net cash. That compares with some 5.9 per cent trading below book value in the S&P 1500 and 15.2 per cent in the FTSE All-Share.
“At some point, we need to change Japan’s capital market,” Mr Sasaki told the Financial Times as he considered his next move, keen to convince investors he has picked the right fight.
“If I win, the Japanese capital market will change and it might trigger a new era. No one has been able to do that since the Meiji [Restoration of imperial rule in 1868]. Maybe I can’t do it, but someone has to bring change at some point.”
Mr Sasaki, who shot to fame towards the end of Japan’s notorious 1980s bubble era when he led a failed $450m bid for the Japanese subsidiary of US cosmetics group Avon Products, aims to shake up Solekia.
“The management has remained silent even as the company continued to have ROE [return on equity] of 0.5 per cent for 15 years. If you leave Solekia as it is, it will be in ruins,” he said.
In response to Mr Sasaki’s calls to enhance its ROE, which stood at negative 3.6 per cent at the end of March last year, Solekia said the pursuit of short-term profits could destroy long-term client relationships.
Its board has recommended shareholders oppose the offer from Mr Sasaki, who it deems not “an appropriate business partner” because of his perceived lack of understanding of the company’s operations. During the course of the confrontation, an unconventionally attired Mr Sasaki — who declared personal bankruptcy in the late 1990s — has found time to attend Vancouver Fashion Week and present his own clothing brand, Wasso Vege’s, on the catwalk.
Fujitsu has worked closely with Solekia for over six decades, has four former executives on the Solekia board and claims that the company is critical for its “digital transition”.
Analysts and investors, meanwhile, describe the economic and strategic rationale for Fujitsu’s counterbid as “minimal” and part of a face-saving exercise that betrays low concern for its own shareholders. Despite the importance it now attaches to thwarting Mr Sasaki’s bid, Fujitsu holds just 2.7 per cent of Solekia and admits that it never considered the possibility it would have to defend the company against a takeover.
It is this dynamic that Mr Sasaki, who holds stakes in four other listed firms, sees as symbolising all that is wrong with corporate Japan.
“People tend to think that whatever big Japanese companies with long traditions do are correct. And Japanese minority shareholders think it is bad if an outsider suddenly comes in and uses force to govern,” he said.
Solekia takeover battle heats up
When Mr Sasaki first made his offer, shares were trading at ¥1,942. The unsolicited bid priced Solekia at ¥2,800 per share, valuing the company at around ¥3bn. Last Wednesday, by which time both Mr Sasaki and Fujitsu had each raised their bids twice, shareholders were being offered ¥5,000 per share. With shares trading at ¥5,100 on Monday, the market is expecting Mr Sasaki to raise yet again.
“The problem for Fujitsu is whether it can afford to be seen to step down,” said Pelham Smithers, who runs a boutique research firm focused on Japan.
“If the bidding does stop here, Fujitsu’s management may well think they’ve dodged a bullet. But if it doesn’t, they could be in for a rough ride.”
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