Japan property group Unizo faces shareholder revolt in deal battle

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Japanese property group Unizo faces a shareholder revolt and a potential attempt to oust its chief executive in a takeover battle that has drawn Blackstone and Fortress into one of Japan’s most contentious deals in recent years.

The possible rebellion comes amid fears among bankers, lawyers and senior government officials that Unizo could block the highest offer on the table – from Blackstone – by attaching conditions that they said could go against Japan’s newly-revised ” fair M&A guidelines ” designed to protect shareholders’ interests.

The merger and acquisition guidelines released in June, say those involved in drawing them up, were specifically designed to protect shareholder interests and are part of Prime Minister Shinzo Abe’s attempts to force better governance standards on corporate Japan.

“What is being attempted by Unizo is a move that would have been normal in the bad old Japan that many investors remember,” said one person close to the panel that advised on the guidelines.

“If they want to show that Japan has changed and the market is becoming fair, it is totally essential . . . for major shareholders in Unizo to stand up now and make sure this kind of strategy doesn’t work.”

The threat of a shareholder rebellion, which is likely to trigger a call from long-term investors for an extraordinary general meeting, has arisen from a chaotic three days in which Unizo abruptly withdrew its recommendation for a $1.3bn “white knight” bid by the Softbank-owned fund Fortress Investment.

Unizo has been in discussions with Blackstone, according to five people familiar with the negotiations, over a bid around 25 per cent higher than the Fortress offer. But Unizo has insisted that it will only recommend a bidder that agrees to a series of restrictive demands, which were outlined in a statement on Friday.

Legal experts said the demands appeared intended to entrench current management and allow the current chief executive, Tetsuji Kosaki, to maintain control in effect through what several people close to the deal described as a “stealth” management buyout.

The conditions, according to the people, in effect ensure that Unizo maintains influence over company management, business strategy, nomination of directors and employment conditions. Much of that influence will be exercised through an entity called “employee stock ownership management company”, which will acquire a stake in Unizo following the tender offer.

While Japanese companies often ask for employment guarantees, a number of investors in Unizo told the Financial Times the nine demands Unizo made to Blackstone were “unheard of”.

“Unizo management is starting to run wild with these demands which we see as excessive,” one investor said.

In response to a request for comment, the company said the structure would not involve its executives including its chief executive Mr Kosaki, and only its rank-and-file members.

Fortress’s bid arose in August after Unizo, which runs a chain of hotels across Japan, received an unsolicited bid from the travel agency HIS a month earlier. The offer from HIS put a premium of about 56 per cent on Unizo’s low share price at the time, and sent Unizo’s management searching for a white knight counter-bidder.

Since then the original HIS bid activist fund Elliott Management has increased its stake in Unizo to over 13 per cent, while other activists funds have also built sizeable positions.

Unizo’s share price, meanwhile, has consistently traded above ¥4,000 per share since the Fortress tender offer.

The people close to the situation said the higher share price forced a change of strategy by Unizo after it tacitly acknowledged about two weeks ago that the Fortress tender offer was almost certain to fail and consulted shareholders on what level a bid might be successful.

Blackstone declined to comment. Fortress did not immediately respond to a request for comment.