JAPAN'S SHAREHOLDERS QUIETLY FORCING IMPORTANT

UNCLAS SECTION 01 OF 03 TOKYO 001550 SENSITIVE SIPDIS DEPT FOR EAP: HASLACH ALSO FOR EEB/IFD: KAMBARA NSC FOR TONG DEPT PASS USTR FOR CUTLER AND BEEMAN USDOC FOR 4410/ITA/MAC/OJ JUSTICE FOR ANTITRUST DIVISION - CHEMTOB TREASURY DEPT FOR IA/CARNES AND POGGI GENEVA FOR USTR E.O. 12958: N/A TAGS: EINV ECON OECD JA SUBJECT: JAPAN'S SHAREHOLDERS QUIETLY FORCING IMPORTANT CHANGES REF: A. TOKYO 1495 ¶B. TOKYO 1353 ¶C. TOKYO 1337 ¶D. 07 TOKYO 3689 Sensitive But Unclassified. Please Protect Accordingly. ¶1. (SBU) Summary: The 2008 annual general shareholder meetings of Japanese listed companies taking place this month are likely to be less contentious than last year's meetings, with only about half of the number of shareholder proposals up for debate. Fewer proxy fights do not mean activist funds are abandoning Japan. Rather, investors are altering their strategies in the wake of last year's defeats and, at the same time, still grappling with the fallout of a July 2007 court decision that cited shareholder support in justifying a controversial corporate takeover defense. Until Japanese companies succeed in boosting their share prices and reducing excessive cash holdings, there will continue to be incentive -- and opportunity -- for shareholder activism in Japan. End Summary. ¶2. (SBU) Because of certain peculiarities of Japan's Company Law and the fact that most Japanese companies use an April-March fiscal year, approximately 53 percent of Japanese listed companies will hold their annual general shareholder meetings (AGMs) during a ten-day period beginning June 18 and peaking June 27. In recent years, these meetings have become fora for activist shareholders to seek changes in corporate behavior over the objections of management. Again this year, several private equity funds are seeking shareholder support for dividend hikes or other corporate governance changes in targeted companies. There was already one dramatic result when U.S. hedge fund Steel Partners joined other institutional investors to oust the board of Aderans Corporation at its May 28 AGM (ref A). More surprises may be possible in the weeks ahead but, overall, the number of contentious meetings is likely to be far fewer than last year. Many Boards Seek to Boost Defenses -------------- ¶3. (U) More than 200 corporate boards will seek shareholders approval of new or renewed takeover defense plans at this year's AGM, according to a Tokyo-based equity analyst who follows these issues. He sees continuation of a trend that began with adoption of the 2005 Company Law. Added to the 86 companies that have adopted defensive measures by board vote since September 2007, the number of companies having takeover defenses in place, if shareholders approve all of managements' proposals, would rise to over 500, almost one-fifth of 2,414 Tokyo Stock Exchange (TSE) listed firms. ¶4. (SBU) This latest push for shareholder approval for takeover defenses is, in part, fallout from the July 2007 ruling in the Bull-Dog Sauce Co. case, in which Japan's Supreme Court refused to block implementation of the company's "poison pill" defense plan, citing earlier, overwhelming shareholder approval of the plan at the company's 2007 AGM (Ref D). Although shareholder approval of takeover defenses is technically unnecessary