Besides, the poison bill defence used by The Hokuetsu Paper Mills against the hostile takeover by Oji Paper’s $US1.2 billion ($1.6 billion) bid, the deal has already been seen by critics to be a failure as a result of the lack of a culture of corporate governance, truly independent directors and a knowledgeable and active shareholder base.
Let look at the basics:

• Oji Paper offers an unsolicited $US1.2 billion;
• Oji Paper would start a tender offer in mid-August for at least 50.1 per cent of Hokuetsu;
• Oji is offering Y860 for each Hokuetsu share, a 35 per cent premium over Hokuetsu’s closing stock price on Friday;
• If Oji Paper takes over Hokuetsu, it would create the world’s fifth-largest paper group;
• Hokuetsu Paper Mills is poised to become the first major Japanese company to use a poison-pill defence after it rejected an unsolicited $US1.2 billion offer from Oji Paper, Japan’s largest paper manufacturer.

The interesting part is that Hokuetsu wants to proceed to tie-up with the friendly party Mitsubishi Corporation, which would make the trading company its largest shareholder.

Ironically, Mitsubishi’s deal to acquire Hokuetsu shares is only at Y607 per share, which is a 4 per cent discount to Hokuetsu’s closing stock price of Y635 on Friday.

Just imagine a bid of Y607 per share vs Oji’s share of Y860 per share.
 

To add salt to the wound, Oji’s offer of a 35 per cent premium on its closing price on Friday – has never at all being presented to a vote by its shareholders, 24 per cent of whom are foreigners.
 

In addition, the three-person “independent” committee that Hokuetsu established to review such bids comprises two former auditors with close links to the company.
 

Critics have commented that it’s just another board of directors who want to safeguard their own jobs rather than enhance the value of the company for their shareholders which is made possible by Japan’s clear lack of a takeover code and coupled with the lack of a culture of corporate governance, truly independent directors and a knowledgeable and active shareholder base.
 

In no other market in the world would any company get away with not presenting terms of a rival bid to shareholders.
 

Ironically, now the answer lies with Mitsubishi which offers a lower bid than Oji whether to accept Oji’s offer or not.
 

The only recourse for Hokuetsu shareholders would be to file an injunction with the Tokyo District Court to try to stop the Mitsubishi deal and call for an extraordinary general meeting. But there is little precedent for such a move and Japanese courts usually side with management. Hence, it looks like another failed takeover attempt.

(Refer to latest development on this takeover in www.fmaccounting.com)