At least for now forget about a dramatically changing Japanese business environment in the area of hostile takeovers among larger-cap firms. Last Wednesday it seemed like there was a chance Oji Paper Co (Tokyo: 3861), Japan's leading papermaker by sales might be able to carry out a takeover employing Nomura Securities Co. as advisor and appealing to the near 25% foreign institutional ownership of Hokuetsu Paper Mills Ltd (Tokyo: 3865). Yesterday however, Hokuetsu management followed through with its plans to sell 50 million shares to Mitsubishi Corp (OTCPK:MSBHY) below market price, with the latter firm increasing its stake to 24.4%, making it Hokuetsu's biggest shareholder. Japan's number two ranked papermaker, Nippon Paper Group Inc (Tokyo: 3893), said it also wants to join the Hokuetsu-Mitsubishi alliance and announced it has raised it stake in Hokuetsu to 8.49%.
Comment: Japan's papermakers are declining in their competitiveness against foreign rivals and are declining in profitability due to rising production costs. It makes sense that Oji wants to pursue a M&A strategy in order to cut costs and consolidate the industry. Easier said than done however, because Japan's leading trading company Mitsubishi is now the largest shareholder of Hokuetsu and there is additional "anti-Oji" support from Nippon Paper, which is suggesting a three-way alliance. Two things are for certain: (1) Nomura's (NMR) advisory fees will be far less than expected and this deal will not give Nomura the boost it was hoping for in M&A and (2) Hokuetsu's shareholders have won the battle so far, with a nearly 35% gain since Oji's takeover bid escalated on July 24th. For more details on this story see last week's Wall Street Journal article summary here and Bloomberg.com coverage here.