Hanshin Electric Railway
©
Hanshin Electric Railway celebrated its
centennial in 2005. Hanshin operates
railways and department stores, and provides
real estate services in the Kobe-
Osaka corridor. It also owns t
he Hanshin Tigers baseball team.
In September 2005, Japanese shareholder
activist Yoshiaki Murakami’s
investment firm, M&A Consulting, acqui
red 47% of Hanshin’s shares at an
average price of less of ¥700.
M&A Consulting then asked for seats on
Hanshin’s board of directors.
M&A Consulting also proposed that Hanshin take various actions to increase
shareholder value. One of the proposals wa
s to spin off the Hanshin Tigers into
a separate listed company.
To fend off M&A Consulting, Hanshi
n’s management solicited a takeover
by another rail operator, Hankyu Holdings.
Hankyu began as a railway operator,
and subsequently, diversified into real
estate, hotels, travel, retail, and
entertainment businesses.
Hankyu’s largest shareholder was Privee Zurich Turnaround Group
Company, which was led by Kenzo Mats
umura. Mr Matsumura had pressed
Hanky to spin off the Takarazuka Rev
ue, a popular but loss-making all-female
acting troupe, into a separate listed company.
1
The combination of Hanshin with
Hankyu would be the first major
consolidation among Japan’s private railwa
ys since the Second World War. The
merged Hankyu-Hanshin company would be Japan’s third rail operator in terms
of revenue.
Hankyu negotiated to buy M&A Consulti
ng’s stake in Hanshin. However,
by late May 2006, the two sides still disagreed by about ¥100 on the price. On
May 29, 2006, Hanshin shares closed at
¥939. The next day, Hankyu launched
a two-tier takeover with the
agreement of Hanshin management.
The first tier was a conditional tender o
ffer for 45% of Hanshin’s shares at
a cash price of ¥930. If the cash offer
attracted 45% of Hanshin’s shares by
June 19, Hankyu would swap each of t
he remaining Hanshin shares for 1.4
Hankyu shares. If the ca
sh offer did not attract 45%
of Hanshin’s shares, the
offer would be cancelled.
©
2007, I.P.L. Png. This case is based, in part, on “Hankyu sets price for bid to take over
Hanshin”,
Asahi Shinbun
, May 30, 2006; “Battle looms as Hankyu bids for Hanshin”,
Financial Times
, May 30, 2006; “Sale decision puts Hankyu bid for Hanshin back on
track”,
Financial Times
, June 5, 2006.
1
“Hankyu opposed to listing of Takarazuka Revue”, Kyodo, January 17, 2006.
Hankyu’s cash offer was priced at le
ss than Hanshin’s last traded price.
Following the commencement of the cash t
ender offer, Hankyu shares rose 3%
to ¥600, so the second-stage swap amounted
to a squeeze out at a price of ¥600
x 1.4 = ¥840.
However, Standard and Poors analyst, Ka
tsuyuki Nakai, questioned the
synergies between Hankyu and Hanshin,
“there are no apparent advantages in
the railway business … given small comp
lementary effects from their railway
routes … unclear how much synergy c
an be achieved in the real estate
development and retailing businesses”.
2
Initially, Mr Murakami opposed the H
ankyu offer as being too low.
Nevertheless, just a week later, on J
une 5, 2006, he agreed to Hankyu’s bid. He
remarked, “I hope the new company
will be managed with s
hareholders in
mind”.
3
Several hours later, government pr
osecutors arrested Mr Murakami on
charges of insider trading in relation
to purchases of Nippon Broadcasting.
2
Financial Times
, June 5, 2006,
ibid
.
3
Financial Times
, June 5, 2006,
ibid
.