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FEBRUARY 7, 2000 VOL. 155 NO. 5

Challenging Japan's Cozy Corporate Culture
A maverick defender of shareholders' rights rocks the system by launching a hostile takeover bid
By DONALD MACINTYRE Tokyo

Yoshiaki Murakami preaches a very American-sounding gospel of shareholders' rights and free markets. That might seem surprising coming from a man who spent more than 16 years as a bureaucrat at the Ministry of International Trade and Industry, an institution infamous for micro-managing Japan's economy and coddling its companies. But 40-year-old Murakami's convictions run deep. When he was 10, his father gave him 1 million yen, or about $10,000 at today's exchange rate, and carte blanche to spend as he saw fit. The youngster promptly went out and bought shares in a Japanese brewery. At university, he was known for an unusually deep passion for investing. And at MITI, he developed expertise in capitalism's roughest side: mergers and acquisitions.

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Last week Murakami flouted convention once again by launching a hostile takeover bid against Shoei Co., a little-known electronics and real estate company. Murakami, who now heads his own M&A consulting firm, MAC Corp., lambasted Shoei's managers for the company's sluggish stock price. He offered $9.50 for each Shoei share, about 14% more than the previous trading day's closing price. It was a stunning move in a country where hostile takeovers are rare. But Murakami's target is bigger than just Shoei. The former bureaucrat aims to shake up boardrooms across Japan. The country's sclerotic management class, Murakami charges, has ignored shareholders and wasted their funds. He hopes to spark a revolution. "We must change the management system," he says. "Japan Inc. is not a market, it's a members' club."

The bid for Shoei has shaken up a system designed to thwart such hostile maneuvers. Partly to ward off unwanted foreign suitors, Japanese companies have for decades wrapped themselves in a cocoon of share swaps with firms in their keiretsu, or conglomerate, making Western-style corporate assaults almost impossible. Raiders have generally been dismissed as cowboys trying to drive up stock prices and make a quick buck, rather than investors concerned with long-term value.

But the winds of globalization are blustering through Japan, and the old-style relationships are unraveling. Shareholders are demanding higher returns and once-alien concepts like koporeto gabanansu (corporate governance) are entering the lexicon. M&A deals soared to $150 billion last year, up from just $17.5 billion a year earlier, according to Thomson Financial Securities Data. Murakami's move promises there's much more to come. "As a wake-up call to corporate Japan, it is an extraordinarily important event," says Gary Stead, head of M&A for Merrill Lynch in Asia.

Shoei is truly a creature from the old school. Descended from a company founded more than 100 years ago, it flourished as a silk producer when Japan was a dominant player on the world market before World War II. But while the industry died in Japan decades ago, Shoei didn't get around to closing its last silk factory until 1995. The company leased out the land under its old buildings and started making capacitors for computers, with some success. However, its stock price languished well below $10 for most of the 1990s. Friendly shareholders like Fuji Bank and electronics maker Canon didn't complain--as companies in the same keiretsu, they saw holding the shares as a way to cement business ties, not as an investment. For the past half century Shoei's presidents have come from Fuji, a debt-burdened institution with no tradition of dynamic management. Murakami's bid last week has shaken up this familiar world. "We haven't done anything wrong," laments Hiroo Kakegawa, a Shoei board member. "We have been trying so hard."

In the New Japan, that might not be enough. When Murakami started to look into the company after leaving MITI last year, he was flabbergasted by what he found. Buying up every Shoei share on the market, he says, would have cost just $66 million, yet the company owned land and stocks worth $570 million if sold off, a fortune in hidden assets. Murakami started accumulating shares (he now owns 2.8%) and approached Shoei president Tanehiko Kamiura to discuss how to put the company's assets to work and revive the stock price. He says he was repeatedly rebuffed. At a press conference last week, Kamiura was dismissive. "I am the president," he said. "I don't need to talk to every investor."

That's exactly the kind of attitude Murakami is battling. At week's end, Shoei's stock price had risen to nearly $12, 25% above Murakami's offer price. That probably means he won't be sitting on the board of Shoei (or Shoei's hidden wealth, cynics say) anytime soon, but that's fine with him. "I've already achieved 90% success," he says. "Everybody wants to know about Shoei and the managers must change." A revolution may be taking root.

With reporting by Sachiko Sakamaki/Tokyo

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