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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
As Japan approaches the end of a year in which its stocks have outdone almost all their global peers, Tokyo has served up a season finale: a ding-dong between two of the country’s highest-profile financial titans and a contender for the world’s most audacious trade of 2023.
The clash over the future of Shinsei Bank pits the ex-Nomura, Confucius-quoting, establishment-smashing online brokerage boss Yoshitaka Kitao, age 72, against ex-bureaucrat, convicted shareholder activist and hostile takeover pioneer 64-year-old Yoshiaki Murakami.
The trade sets two avowed troublemakers against each other in a way that leaves both at risk of humiliation. In some lights, it’s a thing of beauty: a move that fights coercion with coercion and relates to the correct price for control of a bank.
It also feels inevitable. Murakami and Kitao are both Rorschach tests for Japan: whether the observer sees hero, villain, bully, bandit or sleazeball in either says more about you than about the inkblots. Kitao has ingratiated himself with the authorities by investing in weak regional banks; Murakami has spent more than 15 years fighting corporate governance failures that the authorities would officially like fewer of. This is not the first time these two have crossed swords, though everything that came before now looks like a light warm-up for the current confrontation.
The clash’s importance transcends mere spectacle. The fact that this is happening at all, in full view (and perhaps even tacit endorsement) of a domestic political, legal and media establishment that would once have sought ways to shut it down, provides a clear (if pretty messy) answer to the question of whether Japan has changed. It has and still is.
The drama is set around the now lengthy campaign by Kitao and his online brokerage, SBI, to take control of Shinsei Bank — the financial institution that emerged from the post-bubble collapse and 1998 nationalisation of the Long-Term Credit Bank of Japan.
Shinsei was the first Japanese bank ever to fall under foreign control and, even now, emotions around it are raw.
The Japanese taxpayer, via two government institutions — the Deposit Insurance Corporation of Japan and Resolution and Collection Corporation — is not only a major holder of Shinsei, but the DICJ and RCC are bound by rules that mean they cannot sell for less than the ¥349bn ($2.34bn) the combined state investment was originally worth. That equates to a price of about ¥7,450 per Shinsei share.
Kitao’s efforts to gain control of Shinsei, which began two years ago, culminated in a September offer for the 26.9 per cent of Shinsei that SBI, the DICJ and RCC did not already own and valued the bank at ¥2,800 per share. The premium offered (8 per cent) was so derisory that fewer than one in seven of the shares held by minority investors were tendered. Kitao’s apparent plan, say bankers familiar with the situation, was to buy most of Shinsei on the cheap but later swallow the much larger cost of buying out the government at the higher price.
But the low acceptance rate by minority shareholders did not matter much to Kitao, who knows his way around the rules. Upon failing to secure the shares needed for an automatic squeeze-out of the remainder, Kitao convinced both the DICJ and RCC to join him in voting for a reverse stock split that would turn every 20mn Shinsei shares into a single share. Because none of the minority holders held more than 20mn, they would each be left with a fraction of a share, which can be compulsorily purchased by a Kitao-controlled Shinsei.
All very crafty until, in a stroke of eleventh-hour brilliance, Murakami secured precisely 20mn shares at a cost of ¥56bn. With the reverse split complete, Kitao holds five shares, the two government entities hold one apiece and Murakami holds a single share that he cannot be forced to sell.
That share will, however, be worth roughly ¥150bn if Kitao now has to make good on his earlier plan and buy both the government and Murakami out at the same price of ¥7,450. Even if Murakami is, via a quiet arrangement, taken out at a lower price, it is likely he will still be sitting on one of the most lucrative trades of the year.
Kitao will not roll over easily, but nor will Murakami, and there are surely surprises still to come. Meanwhile, the episode is beginning to reveal something uncomfortable (for some) about the country’s relationship with barbarians: the ones capable of the most disruption were never the outsiders at the gate, but the ones born inside the castle and carrying a map of its weak spots in their pockets.