Murakami Fund Ups Stake in Hanshin

This is a mystery to me.

I understand that Murakami is investing in Hanshin, and that his interest has already driven up share prices. I also understand the theory that when share prices get high enough to make a nice profit for his fund, Murakami will sell his stake and collect the dosh. But I also understand that when he sells his stake, share prices will fall.

So what mystifies me is this: who is going to buy Murakami's shares knowing that they will devalue rapidly, and that they are unlikely to reach the same value as when Murakami held them any time soon?

Timing and speculation. It is possible to buy shares that are falling and, with enough speculators trying to get hold of them, force the price up again. Given that Hanshin is a well known brand this could happen. Murakami, though, if he wishes to sell needs to time the sale carefully so that he maximizes his profit. Murakami's stake is big enough for a controlling interest in Hanshin which may be what he wishes to do.

Murakami suggested that Hanshin Tigers shares should be listed on the stock market, but the parent company, Hanshin Railways, shot down that idea. Would have been interesting if it actually did happen, and it's not too uncommon in European soccer.

- Murakami's stake is big enough for a controlling interest in Hanshin

But 38% is not a controlling interest just yet. He'd need over 50% for that. What his stake gives him is a veto over major decisions, which in the Japanese context could lead to a various quids pro quo (or quid pro quos if you prefer) and more effective control than this stake would normally allow. But it's certainly not a controlling interest.

Maybe you mean that it's a big enough stake with which to launch an official hostile takeover bid, which is something different to what Murakami has been doing so far, requiring different statutory hoops to jump through - and a major battle with Hoshino and the fans I dare say. This would be a bruising battle, and I wouldn't be surprised if the Kansai business community closed ranks and tried to freeze out the interloper. Maybe all the oendan could, between them, buy enough shares to block the bid.

Anyway, tonight I was passing by the Hanshin Railways HQ in Noda, and there were quite a few TV crews waiting outside. Was there an important meeting on tonight or something?

Over 50% is full ownership. A controlling interest is a shareholding that is big enough to give you control if others vote with you. But others do have to vote with you for you to get your decisions through. Once they start to do this the interest is controlling. Normally, the biggest investor in a company can make the running and their suggestions are the ones that are accepted because the smaller ones go along with the major shareholder, hence the controlling interest.

The press you saw were probably to do with Hanshin's rejection of Murakami's stock market proposals. Whilst a listing has certain attractions, a big hurdle is the lack of a global aspect to baseball, similar to that of football.

Sorry to pick nits. Overall I think you're right, but:

- Over 50% is full ownership.

Just a matter of semantics, but "full" ownership is 100% ownership.

The Kabushiki Kaisha Ho ("joint-stock company law") stipulates what can and can't be done at different degrees of stock ownership. There are things you can do with one-third and one-half stakes, such as appoint directors to the board and make some decisions at shareholders meetings, but perhaps the point that relates to Hanshin's predicament most closely is the fact that, a two-thirds majority at a shareholders' meeting is required to change the so-called "important matters" of the company. That is, with 2/3, you can amend the articles of incorporation, dissolve the company, change the company's registered purpose, issue more shares, etc., etc. The salient point is that, because Murakami now owns more than a third of Hanshin's shares, no-one at Hanshin holds that all-powerful two-thirds stake. In other words, perhaps Hanshin should not be worried about how much power Murakami holds as much as how much power Hanshin doesn't hold.

Still, that might just be all academic, because, as you say:

- [...] the smaller ones go along with the major shareholder, hence the controlling interest.

- Over 50% is full ownership. A controlling interest is a shareholding that is big enough to give you control if others vote with you. But others do have to vote with you for you to get your decisions through. Once they start to do this the interest is controlling.

But what the Murakami Fund has at the moment cannot be called a controlling interest, because they have there have been no votes to test the support they have from the other stockholders. If they do get the support, then they do have a controlling interest - but we haven't reached that stage yet. So you're jumping the gun a little. That's all I'm saying.

But you know, because of the interest in this potential hostile takeover bid I think the 38% they have will fall short anyway. Certainly there will be resistance to Murakami exercising effective control over the group. They may well need close to the full 50% plus one. It all depends who owns most of the rest of the shares. Most likely institutional investors (as this is Japan).

One thing's clear, though - it's going to be exciting to watch. Maybe as intense as the excitement on the field.

[Updated on Oct 7, 2005 8:09 AM, JST]

- But what the Murakami Fund has at the moment cannot be called a controlling interest, because they have no votes to test the support they have from the other stockholders. If they do get the support, then they do have a controlling interest - but we haven't reached that stage yet. So you're jumping the gun a little. That's all I'm saying.

But I never said that Murakami had a controlling interest. What I said was that the stake he holds is big enough for a controlling interest, not that he had established one. Actually you can exercise a controlling interest with as little as 19% of the stock if the shareholder base is broad enough. Most shareholders (especially institutional shareholders) will go along with the majority shareholder automatically thus creating the controlling interest. Of course it may be different in Murakami's case, but he has a blocking veto and so Hanshin will have to talk to him.

Semantically 100% is full ownership, but in practical business terms full ownership is when you reach the point where you can do what you want without reference to others, in the case of Hanshin 67%. I should have made it clear that I was referring to western companies when I mentioned the 50% limit.

- But I never said that Murakami had a controlling interest. What I said was that the stake he holds is big enough for a controlling interest, not that he had established one.

OK, I accept that. But I think you may find that 38% won't be big enough, considering the strong feelings this issue is arousing here in Kansai.

I wouldn't necessarily agree that most of the institutional investors will go along with Murakami. And being a Japanese company, I wouldn't think that Hanshin's shareholding base is all that large.

But anyway, what I don't like about all of this is that first the Murakami Fund denied they were interested in interefering in management decisions at Hanshin. Then they do an about face and start acting as if they were. So for me, their credibility is now next to zero.

They have the hide to talk about floating the Tigers as a separate entity "for the fans." Yeah right. Frankly most fans want to see the Tigers win pennants, which they just did. With Hoshino calling many of the shots, most fans are happy with the present management of the club, so I don't think an appeal to the fans will help Murakami's cause.

I have a bad feeling about this. Shades of Gordon Gekko perhaps?

My belief is that Murakami is looking at generating short term profits by selling off assets. This is what the proposed listing of the Tigers would be. It would not benefit the fans as such because most shares would be held by investors like the Murakami fund.

The fund itself is now trying to establish a controlling interest and has proposed two candidates for the president's position. For this to succeed it needs the support of Hoshino SD and the board of the Hanshin Group. With this in mind, Murakami and Hoshino met yesterday. Support was not forthcoming, though Hoshino himself is remaining tight lipped. At the moment Murakami is blocked and is under increasing pressure from angry Tigers fans as well.

- My belief is that Murakami is looking at generating short term profits by selling off assets.

Yes, that's exactly my thinking. Typical corporate raider scenario.

What are we to make of the following from today's asahi.com editorial?

But far more promising in Murakami's eyes are Hanshin's real estate holdings in Osaka's Umeda district, as well as the Hanshin Tigers baseball club, which never fails to pack Koshien Stadium with fans. The on-the-book property value of the Tigers' home ballpark is assessed at just 8 million yen, but the property would be worth tens of billions of yen if it was redeveloped into a housing complex.

Murakami can't be seriously thinking about turning Koshien into condos, can he?

I saw the suggestion and took it to be an example, but not a reality. Basically it is impossible - Koshien is the spiritual home of Japanese baseball. It will not be turned into condos.

LOL. Of course not Christopher - I know it was just newspaper talk. Simply a rhetorical question on my part.

But it illustrates how careful we ought to be in accepting Murakami's reassurances of non-interference. He's out to make money, and some traditions might go by the wayside. For example, Hanshin allows the Japan High School Baseball Federation to use Koshien for its biannual tournaments free of charge. Would the bean counters at the Murakami fund seek to change this arrangement?

Might they turn the spititual home of Japanese baseball into a dome in order to make it available for non-baseball activities such as rock concerts and trade shows?

That's the sort of thing I'm worried about.

Murakami's options with regard to Koshien are strictly limited. It will be rebuilt, but the plans show an open stadium. It would be hideously expensive to have a complete re-design to a dome. Interferring with the High School Baseball Championship would also bring the wrath of the entire baseball establishment down on Murakami. I don't think he would want to risk this.

His plan to list the Tigers looks to be stillborn - Nabetsune has indicated that he is against it, and I think he would be able to assemble a veto among the other owners.

I think Murakami is mainly looking at some of the other prime real estate that Hanshin holds. This may be sold off for re-development. For any other of his suggestions, he needs to get his people into the top positions, and this will prove difficult.

Well there are other issues, too.

TV rights: will Sun-TV be frozen out, meaning that free-to-air telecasts will be limited?

Ticket prices: these will undoubtedly rise, but how far? With low price elasticity of demand, this will be an intersting question.

Licensing: Hanshin has many well established relationships with vendors. Will these go out the window? I know people who are extremely worried about this.

Each of these issues have the potential to upset a certain segment of the fan base or business community here in Kansai. How far will he go? Or maybe the question should be: How much does Murakami feel he can get away with?

(BTW, there used to be plans for a domed stadium at Koshien, so it's definitely within the realm of possibility, even if unlikely.)

Remember that Murakami and other such funds make profits by improving the value of a company; they do not strip companies of all they have and leave them as asset-less shells. It is unlikely that Murakami will sell any of Hanshin's prized assets, but there is a good chance he will aim to have them better evaluated. Increasing the book value of Hanshin's assets will boost corporate value and therefore share prices, thus allowing the Murakami Fund to make a tidy profit.

Another move for Murakami to make is to encourage Hanshin to distribute more of its profits to shareholders. Not only will this be of direct benefit to Murakami with his fund's 38%+ holding, it will also make Hanshin shares more attractive to investors and drive prices higher.

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To me, this whole brouhaha is indicative of a wider problem. That is, in an age where banks pay literally no interest and the national pension scheme is heading towards bankruptcy, a surprisingly large number of people have little idea about investment and ways to protect and nurture their hard-earned money.
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Torakichi, I accept what you're saying, but don't you think there's a wider issue here than just the book value of the company, which is largely artificial anyway? I mean, Koshien won't be turned into condominiums, as Christopher quite rightly points out - the land is only ever going to be used to play baseball on - so I would be suspicious of the Murakami fund trying to revalue this particular asset if the aim is simply to increase the share price for themselves.

Maybe the fund can modernize the operations of the Hanshin Group in some way, but by all accounts this appears to be a well run company with sound finances, and a conservative investment philosophy - not to mention its strong ties with the local community and (some would say) a social responsibility to maintain the institution of the Tigers in Kansai. It's a different business philosophy, perhaps, to the usual American capitalist model, but I'd hate to see certain traditions and relationships whittled away simply because somebody wants to make a tidy profit.

The proposed IPO for Tigers is classic asset striping, so we cannot place much reliance on Murakami's past reputation.

As mijow points out, there are also a lot of other areas where intereference could happen. My impression is that these will remain unaltered for a time. Ticket prices I would expect to increase when the new Koshien is completed but not before. I don't think that the fund will micro-manage to such a degree yet, but will look at realising gains from the sale of real estate as an initial step.

I was thinking more along the lines of Hanshin Deptartment Store and the company's other considerable land assets. Murakami appears to have gotten the message about tinkering with the Tigers.

- I was thinking more along the lines of Hanshin Deptartment Store and the company's other considerable land assets.

And I wouldn't have a problem with that, as long as they retained the great wine selection at the department store. It would be shame to lose that.

- [...] there were quite a few TV crews waiting outside. Was there an important meeting on tonight or something?

Just trawling for comments on the Murakami issue, I'd say.

Surely Murakami's aim is to make a profit and get out, not to lay waste to Hanshin. Nonetheless, a question: should Hanshin have seen this coming?

I just can't shake the feeling that Murakami doesn't care too much about the Tigers. I mean, Hanshin Railway has capital in excess of \30 billion, and the Hanshin Tigers have a capital of nearly \50 million. For big-time investors like Murakami, surely a \50 million company is small fry.

On the other hand, all this hullabaloo over his listing the Tigers has to be convenient for him, because it takes attention away from his intentions (whatever they may be) for Hanshin Railway.

The Daily Sports has just printed a survey of Tiger fans' opinions in respect to Murakami's proposals for listing the Tigers. Of the 1,855 people who expressed an opinion 1,712 or 92% were against. Only 143 were for them. Given that Murakami was saying "let's listen to the fans," it seems that the listing is stillborn. Hanshin's wine shop also looks likely to survive.

The Daily Sports fan survey is still continuing. Currently 4,624 fans have taken part. Of that, 93.14% are against listing. Only 317 fans expressed a desire for listing.

NPB executives discussed the Murakami Fund's proposal to list shares of the Hanshin Tigers on a stock exchange at the NPB executive meeting October 21st.

The six Central League clubs agreed that it was inappropriate due to fears of possible intervention by malicious shareholders, and the Pacific League clubs failed to come to a consensus. [Full Story - Japan Ball]

The PL clubs said it was too soon to come to a consensus and wanted to have further discussions on the matter. [Full Story - Daily Yomiuri]

The Daily Sports' survey ended at 10,000 fans with 94% opposition to any kind of flotation. Murakami met with Hanshin management last week and was told that there was no chance that they would approve or initiate a flotation of the Tigers. They are prepared to discuss real estate sales or rentals though.

It looks like Nabestune has broken his silence on this matter finally.

Watanabe urged the Orix Buffaloes (that hold an investment in the Murakami Fund), that the Murakami Fund to give up their baseball financial ties. [Full Article - Mainichi Daily News]

Just to resurrect a dead post. Murakami Fund eventually built up a 45.73% stake in Hanshin Electric. However, the cost of building this and the massive resistance they received have caused them to stop buying. They are now looking to sell their stake in its entirety. Currently Hankyu are very interested and all that needs agreeing to is a price. Hankyu have guaranteed not to interfere with the Tigers or the Hanshin brand, but Tigers fans are still against the move. Keihan and Nankai (the other two private Osaka rail operators) have also registered their opposition to the buyout.

Hankyu and Hanshin have parallel lines in a busy corridor (right?) and Hankyu would get to extend their network with the addition of Hanshin. So I guess it sort of makes sense from a business stand point.

As for the Tigers, it's too bad that Japanese baseball is so intertwined with corporations that people are crying over changing of the corporate crown name on a team. The team nickname need not change and neither the logo, uniform design, etc.

But then again Japan mostly lack the streak of anti-authoritarianism that seems prevalent in the West. So most people are happily in love with Hanshin being equated to the Tigers. Some fans that were interviewed said that he doesn't care about the company, as long as the team remains the Tigers in Koshien, so there is some hope of distancing corporations from the sport, gradually.

Hankyu are interested in Hanshin's land and properties. A lot of it undervalued and in prime locations. Hanshin are probably the archetypal community business - the name itself refers to the region around Kobe and Osaka so it's really intertwined in the region's identity.

But of course Hankyu has very close ties to the local community too - even closer than Hanshin perhaps - with many more department stores and railway lines than Hanshin. (The company enjoys a more upscale image too, with its lines running through the wealthier parts of the region.) Many Tiger fans travel to Koshien using both lines, so the any business tieup would be complementary.

As long as the Tigers keep the Hanshin name. Hankyu knows the local area well enough to not to mess with that, so I'm not worried.