Ex-Morgan Stanley Banker Blocks Merger in Japan First

Former Morgan Stanley banker Scott Callon led Japan's first successful shareholder revolt, blocking the takeover of a specialty steelmaker by a unit of Nippon Steel Corp. because it offered no incentive to investors.

Tokyo Kohtetsu Co. shareholders rejected a bid from Osaka Steel Co., a subsidiary of Japan's biggest steelmaker, President Shunsuke Hirashima said today after a general meeting held in Tochigi Prefecture, north of Tokyo.

``The Osaka Steel deal is dead,'' Hirashima said. ``We've lost a valuable opportunity and I'm very disappointed.''

Callon's Ichigo Asset Management Ltd. said the takeover offer, made at the market price, undervalued Tokyo Kohtetsu. Shares of the construction-steel maker were trading 17 percent higher than the offer price when Ichigo announced its opposition and have since extended their gains.

``It's reasonable for shareholders to want a better deal, and a sign global standards are being felt,'' said Masaki Iso, who overseas about $7.3 billion as head of Japanese equities at Yasuda Asset Management Co. in Tokyo. ``Japanese firms often still neglect shareholder interests and don't understand their responsibilities as public companies.''

Ichigo Asset, which owns a stake of about 13 percent in Tokyo Kohtetsu according to data compiled by Bloomberg, urged other shareholders to reject Osaka Steel's offer of 0.228 of one of its shares for each share they hold, saying a swap ratio of 0.295 would more accurately value the company.

`Promising Future'

``We thank all the individual shareholders who entrusted us with their proxy votes,'' Callon said in a statement released after today's meeting. ``Ichigo highly values Tokyo Kohtetsu and we think the company has a promising future.''

Osaka Steel earlier said it wouldn't revise its offer if Tokyo Kohtetsu shareholders rejected the bid. Tokyo Kohtetsu shares rose 3.8 percent to 630 yen as of 12:57 p.m. in Tokyo.

Tokyo Kohtetsu, whose stock trades at 6.2 times earnings, posted unconsolidated net income of 1.3 billion yen ($11 million) for the nine months ended Dec. 31, an 11 percent decline from the same period a year earlier. The steelmaker forecasts a 20 percent drop in profit to 1.4 billion yen for the full year ending March.

The Tokyo-based firm ranks 14th in market value even as it has the highest returns on equity and assets among 19 publicly traded Japanese makers of specialty steels. Its 12.3 percent return on assets is more than triple the 4.06 percent average of the group.

Mitsui & Co., Japan's second-largest trading house, holds a 29.2 percent stake in Tokyo Kohtetsu, according to Bloomberg data. Nippon Steel, the world's second-largest steelmaker, owns 60.6 percent stake in Osaka Steel.

Mitsubishi UFJ Securities Co., the brokerage arm of Japan's biggest bank, advised Tokyo Kohtetsu in the negotiations. Nikko Cordial Corp. advised Osaka Steel, whose main bank is Mitsubishi UFJ Financial Group Inc.

Shares of Tokyo Kohtetsu gained 20 percent since Singapore- based Ichigo Asset announced its opposition to the Osaka Steel offer on Jan. 15. The stock changed hands 2.6 percent higher at 623 yen as of 10:14 a.m. in Tokyo.

source:www.bloomberg.com