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Business deals

Itochu's sportswear takeover mired in spat over board members

Growth strategy for Descente falls to wayside in hostile-buyout battle

Sportswear maker Descente said it had little recourse but to hope as few people as possible accepted Itochu's tender offer for its shares. (Photos by Kento Awashima, left, and Keiichiro Sato, right)
Itochu took a 40% stake in Descente in hostile tender offer that gave it almost complete control over the sportswear maker. (Photos by Kento Awashima, left, and Keiichiro Sato, right)

TOKYO -- Trading house Itochu's hostile takeover of fellow Japanese company Descente has focused less on the sportswear maker's growth strategy and more on the boardroom lineup.

Itochu lifts its roughly 30% interest to 40% via the just-completed 20.2 billion yen ($181 million) tender offer with a 50% premium, amassing a stake large enough for veto power over key shareholder motions. The bid drew applications for more than 15.11 million shares, the company said Friday -- more than double the 7.21 million it sought.

Descente shares rose 6% to 2,622 yen at one point Friday, before Itochu's announcement. Investors apparently liked Itochu's growth strategy for Descente, which revolves around bolstering Chinese operations.

Now the focus shifts to who will serve as Descente's president, as well as the size and composition of its board. The two companies are expected to restart discussions in a few days.

Descente's 10-member board has two outside directors, two Itochu appointees and six Descente appointees. Itochu looks to shrink it to six, split equally three ways. Descente pushed back with its own proposal to seat one Descente director, four outside directors and none from Itochu.

Representatives from Itochu and Descente met four times in February before talks broke down. It remains to be seen what concessions Descente will offer now that Itochu has clinched what is regarded as the first successful hostile takeover between two major Japanese corporations.

During the failed talks, Descente President Masatoshi Ishimoto had offered to step down and be replaced by Shuichi Koseki, president of Itochu's textile business. Many at Descente have become resigned to a future without Ishimoto but are resistant to Itochu gaining more control in the boardroom. "The resignation of President Ishimoto is inevitable, but I wish to have outside directors occupy at least half of the board," a Descente executive said.

Labor at Descente, as well as alumni, have voiced opposition to Itochu's takeover. Nearly 90% of Descente's Japanese workforce has signed a petition opposing the buyout. But an Itochu executive believes that the opponents will be won over.

"We're confident, and we're moving forward," the source said. "Just watch."

The two sides were too busy squabbling over the board's makeup to deliver a detailed growth strategy for Descente. The company had considered announcing its next medium-term business plan during the tender offer period but gave up, in part because of the distractions from February's talks.

In those negotiations, Itochu failed to present a constructive proposal for Descente's growth, according to executives at the sportswear maker.

If the duo cannot compromise soon, Itochu says it will submit a proposal to shake up Descente's board at an extraordinary shareholders meeting. When taking the shareholder voting turnout into account, Itochu and its declared backers will essentially control the majority of the vote.

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