June 13, 2014 6:09 am JST

Japan Inc. tossing takeover defenses to focus on value

SHUICHI MARUYAMA, Nikkei staff writer

TOKYO -- Heading into annual shareholders meetings, Japanese corporations are rethinking anti-takeover measures and instead starting to work with investors to raise enterprise value.

     Institutional investors generally have a low opinion of measures to discourage hostile takeovers, criticizing the steps as self-protection for senior management. At Topix 500 companies that held shareholders meetings between January and May, resolutions to adopt takeover defenses won approval just 74% of the time on average, according to the Daiwa Institute of Research. This is significantly lower than the 90% range for most other resolutions.

     "Companies should constantly seek to maximize shareholder value," says Masahide Ooka of AllianceBernstein. From the perspective of shareholders, takeovers are not necessarily bad if they help improve value. Defenses that make takeovers impossible are viewed as job protection for managers, so shareholders vote no.

     Change is afoot in some corners of the business world. Right before its meeting last year, Fujifilm Holdings withdrew a resolution to extend a takeover defense after concluding that the measure was unlikely to pass. And 17 companies have ditched anti-takeover measures so far this year, according to Nomura Securities. Listed companies with takeover defense programs are expected to total fewer than 500 in 2014 -- down sharply from the peak of 570, hit in 2008.

     "Profit growth and stronger corporate governance will lead to enhancement of value," a Yokogawa Electric official says.

     "Close dialogue with shareholders and other stakeholders is more effective than defensive measures," a Sanken Electric executive notes.

     Improving earnings and strengthening governance help enhance value, making the companies less-likely targets for hostile takeovers, the thinking goes.

     "Rather than refusing investor demands, companies are engaging in continual discussions in their efforts to improve value," says Soichiro Monji of Daiwa SB Investments.

     Such changes in mind-set are having an effect. Twelve of the 17 companies that kissed defenses goodbye this year saw their stocks outperform the Topix between the end of 2008 and Thursday, including Yokogawa and Sanken.

     "As defensive measures decrease and governance is stepped up, investors and management finally start working together," says an official at FIL Investments (Japan).