Oji Paper "Beyond the Friendly Stage" in Rare Japanese Hostile Offer

by: Steven Towns

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Oji Paper's Bid Breaks With Taboo

  • Summary: Oji Paper Co's tender offer for smaller rival Hokuetsu Paper Mills Ltd. is not only a rare tender offer in itself but is actually the first time ever that a Japanese blue-chip has attempted a hostile takeover of a rival company. Oji is Japan's largest papermaker by sales and the potential deal valued at as much as $1.4 billion would result in the world's fifth-largest paper company. Hokuetsu rejected Oji's acquisition proposal last week and countered by offering to issue shares to a white squire, Mitsubishi Corp, on Monday at 607 yen ($5.30) per share. Oji's tender offer opened today and lasts until September 4th. It said it would pay 800 yen ($6.98) per share if the issuance is carried out or 860 yen ($7.50) if the issuance is scrapped; the latter amount representing a 9.7% premium to Hokuetsu's Monday close of 784 yen. Nearly a quarter of Hokuetsu's shareholders are foreign institutional investors thus, Oji has asked its adviser, Nomura Securities Co., to draft an open letter asking them to challenge Hokuetsu management. Jonathan Allum, a strategist at KBC Financial Products commented, "This is real, old-style, traditional Japan slugging it out. It may be that this will be the beginning of a series of similar moves."
  • Comment on related stocks/ETFs: Neither Oji (Tokyo: 3861) nor Hokuetsu (Tokyo: 3865) are traded in the U.S. and although this tender off might not make the front pages in the U.S., it is big news for Japan and could have a lasting impact on its business environment. M&A activity has been brisk in recent years and is expected to remain strong as larger firms look to deploy cash hoards to expand growth, at the same time big name private-equity firms have been setting their sights on Japan. The authors of the article noted that "Oji's decision to push forward with a hostile tender offer is a sign of the dramatic changes under way in corporate Japan." Deals involving smaller firms and investment funds have helped break the "taboo" and now market forces are in play.