SAPPORO HOLDINGS PANEL CALLS FOR REJECTION OF

UNCLAS TOKYO 000324 SIPDIS SENSITIVE SIPDIS DEPT FOR EAP ALSO FOR EEB/IFD/OIA:KAMBARA DEPT PASS USTR FOR BEEMAN USDOC FOR 4410/ITA/MAC/OJ/NMELCHER 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: SAPPORO HOLDINGS PANEL CALLS FOR REJECTION OF STEEL PARTNERS TAKEOVER BID REF: 07 TOKYO 03689 SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY. ¶1. (SBU) Sapporo Holdings, Inc., the parent company of Sapporo Breweries, announced February 5 that an independent advisory committee it set up to analyze the February 2007 takeover bid (TOB) by U.S.-based investment fund Steel Partners had determined the bid is not in the best interests of the company. The committee, which consisted of two academics and a former Fujitsu Corporation executive, criticized Steel Partners for failing to provide details on how it would manage the company after a takeover and how it would recoup the costs of purchasing Sapporo shares. However, the committee did not label the fund an abusive acquirer. Sapporo's board now has until March 5 to respond formally to Steel's bid. The view here is the board is almost certain to reject the bid and implement a takeover defense. End Summary ¶2. (SBU) The analysis by the committee of three outside experts was part of Sapporo Holdings' "advance warning system", which the company invoked after Steel Partners' February 2007 tender offer for 66.6 percent of the company's shares. Steel Partners is the Hokkaido-based firm's largest shareholder with a 17.5 percent stake. In response to a request from Sapporo's board, Steel Partners in November 2007 submitted a 125-page "Corporate Value Enhancement Plan" analyzing the company's current business operations (to the extent possible without the business proprietary information that the company refused to provide) and making specific recommendations on how to streamline Sapporo's existing brand lineup, expand its core beer business and maximize the value of the firm's extensive real estate holdings in central Tokyo. ¶3. (SBU) Comment: Steel Partners, after being tagged an abusive acquirer in the 2007 Bull-Dog Sauce case (Reftel) has made a concerted effort to explain its strategy for improving the target company's operations. The rejection by Sapporo's panel of experts of Steel's plan, therefore, may dishearten potential investors since it confuses the role of shareholders, who as owners have a right to set strategic direction of the company, and the role of managers responsible for day-to-day operations. The outcome of the advance warning defensive mechanism in this case seems to support Steel's charge that Sapporo was not interested in a dialogue on improving the company's value, but rather was looking for an excuse to reject the takeover bid. DONOVAN