Close-Knit Japanese Firms Frown on Takeovers : Pickens Tokyo Raid May End in Retreat

T. Boone Pickens Jr., one of the most feared of America’s corporate raiders, is trying to succeed where all foreigners have failed. But a collision with Japan’s corporate fortress could force him to retreat, industry analysts say.

The legendary Japanese inter-company loyalty and some apparently poor planning appear likely to deprive Pickens of success in his raid on Koito Manufacturing Co., a Tokyo-based automotive parts maker.

“Japan’s corporate community really hopes Pickens will fail,” said an analyst at a major Japanese brokerage house. “This is a new experience for Japan. It would destabilize business here and strain relations between companies if we had to deal with corporate raiders,” he added.

Foreigners have never succeeded in a hostile takeover of a Japanese firm.

It was disclosed last week that Pickens had become the biggest single shareholder in Koito with a holding of 20.2%--about one percentage point more than the mighty Toyota Motor Corp., which has the second-largest stake.

Analysts said Pickens is attempting a classic, U.S.-style corporate raid, often involving the purchase of a large block of stock, pushing up the price by offering to buy more shares and then selling them off for a quick profit.

But this is Japan.

Nobody, or at least nobody important, will bargain with Pickens, said Robert Zelinski, analyst at Jardine Fleming Securities in Tokyo.

Koito shares closed at $33.18 (4,380 yen) Wednesday against $38.34 (5,100 yen) on March 30.

“Pickens will probably retreat from this bid. It is very difficult for an outsider to do takeover raids on Japanese companies,” said Richard Ho, analyst at Barclays de Zeote Wedd in Tokyo.

Pickens, who bought the 34.2 million Koito shares through his privately owned Boone Co. of Houston, has not said how much he paid for them. But analysts say he is risking a loss if he sells at current prices.

And if investors get wind that Pickens is dumping his Koito holdings, the share price will plummet, Ho added.

Pickens, feared and famed in the United States after raids on American oil companies, may have underestimated what loyalty means in Japan’s tightly woven corporate community.

“The Japanese business community is very reluctant to allow hostile takeover bids,” Ho said. “It would disturb the harmony.”

A spokesman for Koito, which sells more than 50% of its production to Toyota, said neither his company nor the giant auto maker would sell shares to or deal with Pickens.

“We will not even buy shares from Pickens if he is selling them at a loss,” said the Koito spokesman.

He added that 62% of Koito’s shares were owned by institutions, banks or companies closely related to Koito or Toyota. “We can rely on them.”

Toyota has been openly critical of Pickens. A Toyota spokesman said: “This raid is bad for the shareholders’ profits and it makes everything unstable. We have no plan to sell to Pickens.”

Analysts said Pickens may have only one option left--”greenmail,” in which a company pays a premium price to buy back stock from the raider. They said that if he acquires a 33% stake in Koito, he could veto major board decisions, which must be carried by a two-thirds majority vote.

With such a grip on the company, Pickens would be in a position to greenmail Toyota, awash in about $20 billion (2.65 trillion yen) of liquid assets, into buying out his stake at a high price.

“But Toyota has no choice but to say: ‘We cannot pay greenmailers,’ ” Jardine’s Zelinski said.

He added that, in any case, it would be difficult for Pickens to pick up the extra shares needed to command a 33% stake.