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Capital Markets

Shareholder activism: Reluctant activist makes history in Tokyo

Row brews over sale of Japanese steel maker.

In January, start-up fund Ichigo Asset Management announced that it had acquired a 10.96% stake in Japanese steel maker Tokyo Kohtetsu along with its intention to "seek a dialogue with management" over the terms of a merger agreed last October with Osaka Steel Co. Ltd. That might seem like another western hedge fund hijacking the activist agenda for its own greenmail purposes. The reality, though, is quite different.

"The whole thing’s been a nightmare," says Scott Callon, partner and CEO of Ichigo. "We spent more than six months researching Tokyo Kohtetsu as a key investment for our new fund. Then literally five days before our fund launch, it decided to go sell itself."

Not that Ichigo was averse to the merger – more, it was the terms of the deal that concerned it. When these were announced, it became apparent that the interests of Tokyo Kohtetsu shareholders had been largely disregarded.

"The deal makes a lot of sense strategically," says Callon. "They are two very successful companies and the deal will bring synergies of more than 50% of Kohtetsu’s earnings. But then you look at the terms of the deal and it’s clear that shareholders are being left behind."

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