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Exclusive-U.S. fund says Japan’s Shimizu should halt bid, says unfair to minority shareholders -Breaking

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© Reuters. FILEPHOTO: This is a man walking past Shimizu Corp’s logo at a Tokyo construction site on December 18, 2017. REUTERS/Toru Hannai

Makiko Yamazaki

TOKYO, Reuters – An American-based fund demanded Japan’s Shimizu Corp stop a $190m bid to acquire Nippon Road Co Ltd. The deal was unfair to minor shareholders and would not support governance reform.

Kaname Capital, in a letter addressed to Nippon Road’s board and seen by Reuters this week, objected at Shimizu’s attempt to increase its holdings to 50%.

Kaname owns 1.8% share of Nippon Road. It said that the deal would disadvantage minority shareholders by making them investors in a listed subsidiary.

A partial bid would be unsatisfactory. A 100% bid is necessary to ensure fair treatment for all shareholders,” said the Boston-based fund in its letter.

Kaname stated that the offer price for 10,000 yen ($84.13 per share) was excessive considering Nippon Road’s cash, shareholdings, and other assets. The share value is closer to 12,500yen.

Shimizu, Japan’s largest construction firm, offered to buy the shares at a reduced price. However, minority shareholders were left with “a poor decision”: either accept the low price quickly or stay with the lower valuation and trading liquidity of a subsidiary listed, as the Japan-focused fund stated.

Shimizu refused to comment. Nippon Road was not immediately open for comments.

Japan’s government, the Tokyo Stock Exchange, and its Japanese counterpart have advocated for the reduction of “parent-child Listings”, in which large listed subsidiaries also list.

Critics claim that the practice could lead to poor governance, lower valuations and lax governance. The parent controlling stake can weaken the voting power for minority shareholders.

Shimizu’s tender will close Tuesday. This offer for 10,000 yen is roughly 20% higher than Nippon Road’s close price right before it was made public.

On Friday, shares of the company were close to the offered price of 9,790 Japanese yen. According to Refinitiv data the company’s book value is still lower than what it trades at, which means that its assets are worth less.

According to Nomura Institute of Capital Markets Research, Japan has 248 listed subsidiaries in March 2013. This is more than 40% less than the 417 peak of 2007 and represents a decline of over 40%.

Such listings have been discouraged under governance rules due to inherent conflicts of interest.

Tokyo’s bourse will also introduce tighter liquidity regulations in April. It is the largest overhaul of Tokyo’s equity market in over a decade. This will be more difficult for businesses that are mainly owned by their parent company or business partners.

Industrial conglomerates often sell off their group companies in order to get rid of parent-child lists. Hitachi Ltd. (OTC) Ltd., for instance, has either sold off or taken control of over a dozen subsidiaries, including Hitachi Chemicals, Hitachi High-Technologies, and Hitachi Chemicals.

($1 = 118.7400 yen)

($1 = 118.8600 yen)

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