Young Turk

25 March 2005



Takafumi Horie Shakes up Japanese Broadcasting with Attempt to Buy Fuji TV

Takafumi Horie is a 32-year-old entrepreneur. His company, Livedoor, is an Internet firm, and it has become his vehicle to take over other companies. Were he American, Mr. Horie, a college drop-out as is Bill Gates, would be a hero in his nation. But he's Japanese, and nothing bugs the old men who still run Japanese companies more than a young whippersnapper who threatens their way of managing things. Now that he is on the verge of taking over Fuji TV, a big and poorly run company, Japanese regulators are entering the fray. The question is which side are they one?

Traditionally, Japanese companies have cross-held shares in one another, and this has kept M&A activity almost non-existent. In recent years, this has unraveled as institutional investors started demanding a return on their investments. Thus, there are few rules covering the corporate-takeover game, and an increase in takeover activity demands such. Naturally, the old men want to import the Anglo-American bad idea of the "poison pill." By creating disincentives to mergers, management can protect itself from the owners of the company, whoever they may be.

Mr. Horie has been a bit sneaky, making after-hours stock purchases (which, therefore, don't get reported right away) in Nippon Broadcasting Systems -- a subsidiary of Fuji TV, which nonetheless owns 22.5% of Fuji TV. He now has more than half the votes in NBS, meaning he has 22.5% of Fuji TV as well. NBS's board is trying to dilute his holding, and Fuji TV is trying the same thing. Mr. Horie has been winning the court battles, though, and there is an economic logic to his position -- the company must be run to suit the owners' interests, and if he as 22.5% of the votes, his interests matter.

So the boys from the Ministry of the Economy, Trade and Industry [METI] have announced plans for rules to handle this kind of situation. And the reformers are likely to back the old guard against the young Turk in what is the most disingenuous reasoning since Mr. Bush sent the troops up the Baghdad road. Bidders should be allowed to make takeover offers (OK, thus far), company boards should consider these seriously (still fine), and therefore, management should be allowed to slow down the takeover process to properly consider the offers (whoops!). Proper consideration to examine competing bids is reasonable, but to give the sitting board the power to decide whether they can tinker with shareholder rights in order to keep their positions is a ludicrous abuse. Unlike in the US or the UK, directors of Japanese boards have no fiduciary responsibility to shareholders -- so guess whose interests they will pursue?

Far better for the Japanese economy if METI did nothing. Let the takeover attempt play itself out, and if Mr. Horie gets control of Fuji TV, let him make something vibrant and profitable out of it. And if he fails, so be it. Markets require governmental rules to establish the market's procedures, not its outcome. The only folks who appear to be losing out if Mr. Horie wins are the old men who've made Fuji TV what it is today -- moribund.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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