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Business deals

Maeda's takeover bid for affiliate road builder faces resistance

Cash-rich Maeda Road spurns offer and looks for white knight

A highway interchange in Tokyo: Maeda Corp. seeks to expand its toll business, aided by a takeover of affiliate Maeda Road Construction.   © Reuters

TOKYO -- Midsize Japanese builder Maeda Corp. has triggered an unusual squabble within a business group, saying Monday it will launch a hostile tender offer for affiliate Maeda Road Construction.

Maeda Corp., the top shareholder in the road builder with a stake of just over 24%, aims to raise its interest to 51% and turn the unit into a consolidated subsidiary. Maeda expects to pay 86.1 billion yen ($781 million) for its increased ownership.

But a defiant Maeda Road announced Monday that it would sever its relationship with the group company and buy all shares already owned by Maeda Corp.

Maeda Corp. will offer 3,950 yen per share, a 50% premium on the affiliate's closing price Friday. The tender offer extends from Tuesday through March 4.

The company aims to bolster its street paving operations by making Maeda Road a subsidiary. This would let Maeda Corp. become a so-called concession business, entrusted by local governments with building and operating infrastructure. Maeda Corp. runs a thriving toll road operation in central Japan's Aichi Prefecture and hopes to expand that business.

"If the two companies unite, we can become a comprehensive infrastructure company that can handle everything from construction to operations," Soji Maeda, president of Maeda Corp., told reporters Monday.

Maeda Corp. President Soji Maeda discusses the tender offer on Jan. 20. (Photo by Takaki Kashiwabara)

Share prices for both companies rose Monday after the news. Maeda Corp. ended the day up 5.97%, while Maeda Road closed at 3,135 yen for a 19.07% rise.

But Maeda Road rejected the offer as "one-sided and sudden, without any formal communication," company President Ryozo Imaeda told Nikkei on Monday.

"There aren't any discernible synergies, and we want to ensure management independence," Imaeda said, explaining why he wished to sever all capital ties between the companies.

Imaeda noted that Maeda Road had a larger market capitalization and more cash on hand than Maeda Corp. "Maybe they are after the cash," he said.

"All possible countermeasures, including a white knight, are being considered," Imaeda added.

Maeda Road was established in 1930 under a different name and originally was unrelated to the Maeda construction company. It became a Maeda group business in 1962 through a bailout and entered its current capital relationship with Maeda Corp. in 2001.

But the affiliate's "direct business with Maeda accounts for 1% of sales," and "no synergies are expected," Maeda Road said.

Hostile tender offers are rising in Japan as businesses face more pressure to raise shareholder value at the expense of traditional capital ties. M&A advisory Recof cites five hostile acquisitions among domestic companies in 2019, just behind the record of six in 2005.

Shareholders have pushed to alter the relationship between Maeda Corp. and Maeda Road.

"We've been asked by shareholders such as Oasis Management to improve the capital relationship," Imaeda said, referring to the investment fund in Hong Kong.

A Maeda Corp. executive said overseas interests have advised the takeover.

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