TOKYO – Private equity giant Cerberus Capital Management LP and Japan's Seibu Holdings will square off in a shareholder vote on Tuesday over the U.S. firm's drive to shake up the board and win more influence.
The standoff between Cerberus and Seibu has been seen by some investors as a test of Japan's receptivity to foreign capital as popular Prime Minister Shinzo Abe promises to deregulate the economy to stoke growth.
At the meeting to be held near Seibu's headquarters outside Tokyo, investors in the property and railway company will vote on a Cerberus proposal for a new slate of directors, including former U.S. Vice President Dan Quayle and former U.S. Treasury Secretary John Snow, to bolster corporate governance.
Tuesday's vote is the latest salvo in a months-long war of words over Seibu's planned relisting on the Tokyo Stock Exchange, expected to be worth several billion dollars.
Cerberus says Seibu must improve governance and earnings performance first to ensure it gets a fair value for its shares. Seibu President Takashi Goto has said the fund's actions are hurting the company's corporate value and hindering its plans to relist.
The American fund injected more than 100 billion yen ($1.06 billion) into Seibu by 2007, leading to a bailout of the railway and hotel operator after it was delisted in the wake of a scandal centered on the falsification of financial reports.
CERBERUS RAISES STAKES
Cerberus is Seibu's largest single investor but analysts see little chance for its dissident slate to win a majority backing.
In March, Cerberus launched an unsolicited bid to boost its stake in Seibu from 32.4 percent to 44.7 percent to exert additional leverage over Seibu management. The bid only allowed Cerberus to increase its stake to 35.48 percent.
That is a big enough margin to allow Cerberus to veto decisions at future shareholder meetings. But Seibu management retains support among other large investors, analysts said.
"From the result of the tender offer, it is obvious Seibu shareholders are supporting Seibu management," said Kengo Nishiyama, senior strategist at Nomura Securities Co, the main unit of Nomura Holdings Inc <8604.T>.
"Cerberus's proposal will probably be rejected and its challenge to win understanding from the shareholders will start from now."
Ahead of Tuesday's meeting, Cerberus sent a 22-page letter with detailed questions for Goto, asking him to explain how the current board was being held accountable for the company's performance and disclosure.
The relationship between Goto and Cerberus broke down last year as the company prepared to relist that could have allowed Cerberus to cash out on some of its investment of more than $1 billion.
Cerberus has been in the process of cutting its exposure to Japan. Earlier this year Cerberus sold a controlling stake in a Tokyo-based Aozora Bank <8304.T> in the public market. It had invested more than 101 billion yen in the bank.
Aozora Bank, formerly known as Nippon Credit Bank, was temporarily put under government control during Japan's financial crisis in the late 1990s. ($1 = 97.4750 Japanese yen)
(Reporting by Junko Fujita; Editing by Jeremy Laurence)