A Substantive Battle at Tokyo Style


By Brian Bremner Crusader or asset stripper? Yoshiaki Murakami, the founder of investment management company M&A Consulting, has been called both -- and worse -- in recent weeks. Remarkably, the former bureaucrat-turned-gadfly has become something a cause célèbre in the Japanese press for his proxy campaign to promote bigger dividends and outside directors at Tokyo Style, a little-known but cash-rich company.

Tokyo Style is a $480 million women's apparel maker that's sitting on nearly $1 billion in cash and marketable securities. That's about 70% of its total assets and more than its market capitalization of $890 million. Murakami's M&A, which owns 11% of Tokyo Style, wants President Yoshio Tanaka and the company's board of insiders to share some of the wealth in the form of a $3.90 dividend and a plan to buy-back 34 million shares, about one-third of all outstanding shares.

PUBLICITY BLITZ. That such a dispute would turn into a media morality play speaks volumes about the state of corporate governance in Japan. No slouch at promotion, Marakami's mug is all over the Japanese business glossies. And during a recent swing through New York to meet with foreign shareholders of Tokyo Style, a Tokyo Broadcasting Network TV crew tracked him for an upcoming broadcast. "He has a friend who is a producer," grins M&A co-founder and fellow Tokyo University graduate Kenya Takizawa.

To some, though, Murakami is less of an investor folk hero and more of an angler engaged in "asset thievery cloaked in the guise of corporate governance." That charge was leveled by Tokyo Style's Takano in a written rebuttal to M&A's proposal back in February. Nor are many Japanese executives in the corner offices all that crazy about outside directors, while Murakami wants two at Tokyo Style. Aside from such companies as Sony and Mitsubishi, outside directors are a rarity.

Murakami is the first to admit that his campaign isn't just about making Japan safe for shareholders. He wants to make a killing for the backers of his two funds, which have $470 million under management. They include big players such as financial services giant Orix and assorted personal friends who helped him launch his first fund in 1999.

"MARKET DISCIPLINE." As such, he's out to generate even more handsome returns than the 15% annual gains he has managed since then. To get there, he's targeting small and midsize cash-rich companies. Rather than invest millions to refinance and turn around sick companies, Murakami figures that "a cash-mountain type of company is a lot easier to change."

It's a theme that some of the big investment firms such as Merrill Lynch, Goldman Sachs, and others have recently trumpeted, perhaps trying to generate some enthusiasm for Japanese stocks in a nowhere market. They have cranked out lists of cash-rich companies with heavy foreign-share ownership that could be low-hanging fruit for investors (see table). According to Merrill equity strategist Masatoshi Kikuchi, the M&A saga could mean more "market discipline for similar cash-rich companies."

Murakami's case against Tokyo Style -- which declined to comment for this article -- isn't a bad one. The company hasn't invested much in its core apparel-making business, where revenues contracted 7% last year, to $480 million. Its stock has been an underperformer relative to other retailers, and Tokyo Style's return on equity is less than 3%.

CRUMBS? Even so, Tokyo Style is offering slightly better terms to shareholders following the launch of M&A's plan on Jan. 31. Dividends would be raised from 10 cents a share to 15 cents a share, while up to 10% of outstanding shares would be bought back. On top of that, as much as $460 million of its cash would be invested in new brands for its apparel offerings, real-estate, and perhaps mergers to build the business. The annual shareholders' meeting is May 28.

Murakami says that's still crumbs for investors. He fears that Takano's real-estate speculation could destroy a lot of shareholder wealth down the road. He's also incensed that Tokyo Style is increasing its cross-share relationships with friendly banks and suppliers. The chunk of shares expected to side with Tokyo Style has jump from 30% to 37% this year, pretty much matching the foreign-owned holding.

"It's unbelievable," says Murakami, who sees the outcome of the May 28 meeting as too close to call. Either way, one thing is clear. The days when Japanese chief executives could thumb their noses at disgruntled investors are coming to an end. Foreigners are now too big a force in the market, and the overall trend among banks and companies is to unravel cross-share networks to free capital for more productive use. Over time, Murakami likes his odds.

Low-Hanging Fruit?

These are among the other cash-rich Japanese companies that might be ripe for a proxy fight:

Daito Trust (Construction)

Market cap: $1.9 billion

Net cash: $1.1 billion

Suzuken (Drug wholesaler)

Market cap: $1.2 billion

Net cash: $914 million

Chudenko (Electrical engineering)

Market cap: $875 million

Net cash: $328 million

Kinden (Energy, communications, environment)

Market cap: $1.1 billion

Net cash: $726 million

Data: Goldman Sachs Bremner, Tokyo bureau chief for BusinessWeek, offers his views every week in Eye on Japan, only for BusinessWeek Online


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