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NOVEMBER 14, 2005
High Season For Raiding Yoshiaki Murakami is showing how Japan's economic recovery and deregulation are turning stodgy companies into gold mines Hanshin Electric Railway Co. is hardly a hot-growth stock. The $2.5 billion Osaka company owns a sprawling century-old empire that includes depreciated railway lines, middlebrow department stores, undistinguished hotels, and a professional Japanese baseball team. It's considered an earnings laggard even among other railroad conglomerates such as Keio Corp. and Tobu Railway Co. For nearly a decade, Hanshin's stock has flat lined. Investors could be forgiven for wondering why anyone would want to risk good money on an outfit like Hanshin. Enter Yoshiaki Murakami, self-described Japanese corporate raider. The 46-year-old former Trade Ministry bureaucrat began stealthily amassing a 39.7% stake in Hanshin in September through his twin investment management vehicles, M&A Consulting and MAC Asset Management Inc. By early October, Murakami had spent nearly $1 billion on Hanshin's stock and convertible bonds. Why Hanshin? Because the company, in Murakami's estimation, is a dusky jewel with vast holdings of underdeveloped real estate. Once word of Murakami's buying spree spread to Kabutocho, Japan's Wall Street, the railroad group's share price soared to a 15-year high on Oct. 29, increasing the value of Murakami's stake to some $1.5 billion. "It's hard to make money investing in robust companies, but it's easy to profit from companies that are doing nothing with prized assets," he says. After three years of relatively low-profile investments, Murakami is back in the limelight. This time he is showing how deregulation, an economic recovery, and a soaring stock market can turn cash-rich, stodgy Japanese companies into gold mines for daring, reform-minded investors like himself. Murakami is at the forefront of a budding shareholder activism movement that is finally starting to pay off. Investors have long been considered second-class citizens in Japan Inc. But now, "what we're seeing now is a lot of soul searching within Japanese management teams," says John Sequeira, a partner at Bain & Co. in Japan. "Over the last two to three years, they have made progress in addressing shareholder demands." Murakami is out to quicken the pace of change, which is one reason he has no plans to cash in on those big paper gains at Hanshin just yet. The company's senior management has agreed to Murakami's demands to make better use of its $2 billion real estate portfolio by building apartment and shopping complexes on land now used for parking lots. But Murakami also wants Hanshin to spin off the Tigers baseball team with a public listing -- a first in Japan for a pro team -- and start broadcasting games over the Internet to expand the team's national fan base. Hanshin isn't the only big game Murakami has been hunting of late. In the last seven months, his investment companies have bought a 10% stake in the Osaka Securities Exchange, making him the bourse's No. 1 shareholder. Using that status as a cudgel, Murakami browbeat the OSE's reluctant board into agreeing in May to use part of its $200 million in cash reserves to jack up the planned dividend payout for 2004 by 80%, to $78 a share. This year the dividend will be boosted 20% from the original amount, to $52. In early October, he grabbed 7.45% of No. 2 ranked Japanese television network Tokyo Broadcasting System Inc. and then suggested that the network's execs consider a $5 billion management buyout. FOREIGN RIVALS While some critics carp that Murakami is guilty of very un-Japanese grandstanding and confrontational tactics, he says his only mission is to make money for the 100-odd investors in his funds. These include U.S. university endowments, pension funds, and Middle East oil producers that Murakami declines to name. So far his track record -- at least in terms of raising funds -- has been impressive, with the combined money under management at his funds up from $470 million in 1999 to $3.5 billion today. These pools invest in a variety of Japanese companies and act like hedge funds, with an undisclosed minimum investment and lockups of one year. But with more and more private equity players piling into the market, competition may erode Murakami's returns, which he says have actually risen from around 15% to 20% three years ago, though he won't say by how much. In addition to Japanese rivals, competitors from abroad include Carlyle Group and Kohlberg Kravis Roberts. "There are a lot of firms out there doing what Murakami's doing," says John Vail, JPMorgan Securities Asia's equity strategist in Tokyo. "It [has] raised valuations of what were once thought to be boring Japanese companies." In fact, some takeover artists are ripping pages from Murakami's own playbook and frustrating his plans. Within days of sending his management buyout proposal to TBS in mid-October, for example, he was forced to retract it when a challenger appeared in the form of Japa-nese Net retailer Rakuten Inc. That company, run by another well-known Japa-nese maverick, Hiroshi Mikitani, bought 19% of the broadcaster and offered TBS a strategic tie-up to foil Murakami's bid for a larger say in the company's management. "Buying a stake was the only way we would have a shot at negotiating a possible tie-up," says Mikitani. What's more, Murakami's attempt to double his funds' stake in the OSE, to 20%, was blocked by Financial Services Agency regulators in August, who cited possible conflicts of interest, including the chance that he could sway the bourse's decisions on new listings. And Murakami's proposal for a Hanshin Tigers initial public offering has been flatly rejected by both club management and professional baseball officials. Murakami shrugs off the setbacks, and simply admits to being a better fund manager than corporate administrator. "I manage money," he says. "I'm no good at managing a company." PIONEERING BID Murakami's willingness to take on the Establishment first earned him celebrity status five years ago. He shattered protocol in corporate Japan by threatening to take his fights to usually carefully stage-managed shareholder meetings. In 1999, Murakami launched the first-ever hostile takeover by a Japa-nese firm -- an effort to seize control of real estate company Shoei Co. He pocketed returns of roughly 50% after selling his stake in August, 2002. Murakami then went after Tokyo Style, a small maker of women's apparel, but was unable to force management to distribute to shareholders $1 billion in cash and securities. Still, its shares are up 30% since he bought his stake back in February, 2001. Murakami maintains his Tokyo Style foray helped sharpen his skills as a corporate raider. And despite more competition, he sees plenty more shareholder value to unlock -- and plenty more deals to be done.  By Kenji Hall
BW MALL
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