Tycoon Oei Hong Leong may be further from his dream of controlling a Japanese company than was earlier thought, if the advice by Japan Land’s independent financial adviser holds any weight.

Last week, DMG & Partners Securities advised directors and shareholders of Japan Land to reject the takeover offer by Mr Oei – who owns a 4.01 per cent stake – to buy the remaining shares at 60 cents apiece, citing ‘insufficient compelling reasons’.

The offer price is at an estimated 7.14 per cent premium to Japan Land’s net tangible assets (NTA) per share as at March 31. But based on revalued NTA per share, it could be at a discount ranging from 13.04 per cent by the most conservative estimate to as high as 21.05 per cent.

With the bid perceived to be too low, it may require more sweeteners for shareholders to jump at the offer, particularly those who bought in at more than a dollar one year back even before Japan Land did a 10-into-one share consolidation. Certainly, no shareholder would wish to exit at a loss.

The big question hence hinges on whether Mr Oei would up the ante with a higher bid. And to answer that question, one should assess his level of interest in this takeover deal.

Shareholders who attended Japan Land’s annual general meeting on July 30 will vividly recall his surprise appearance one day after he made an offer for Japan Land. He also told the press that the Japanese market is familiar ground. Merely one week ago, he gave a talk at a management seminar in Tokyo on corporate governance.

So clearly, the undeterred businessman, despite two failed investments in Japanese paper options in the 1990s, is now taking another shot – this time through a Japanese firm with a strategic stake in the largest shareholder of Tokyo Stock Exchange (TSE).

Japan Land’s effective 14.13 per cent associate Japan Asia Holdings Japan (JAHJ) holds a 3.52 per cent stake in soon-to-be-listed TSE. By gaining control of Japan Land, Mr Oei is estimated to lift his effective stakeholding in JAHJ, including his personal stakes, to over 40 per cent.

So it’s an opportunity to hold a valuable controlling stake in TSE’s largest shareholder. As well, JAHJ is also sitting pretty on stakes in three TSE-listed and two Jasdaq- listed companies, among its assets. Taking over Japan Land means so much more than its core business.

So it is little wonder that Mr Oei is making a painstaking effort to accumulate his 4.01 per cent stake or some five million shares in Japan Land in illiquid trading, followed by the launch of a takeover offer – which indicates just how serious his intentions are.

If that reading holds true, then a higher bid may be the next move for Mr Oei to address the perceived undervaluation of Japan Land even by conservative assumptions – note that DMG pegged TSE’s market value at only $3.36-6.13 billion upon listing. That figure is less than the the market value of even the Singapore Exchange (SGX).

There are other issues facing the offer now. JAHJ is also undergoing a backdoor listing via a share swap with Jasdaq-listed ATL Systems. It may make less economic sense to gain control of Japan Land after the share swap is completed on the expected date of Nov 4, since it could no longer equity-account for JAHJ.

Therefore, any revision to the offer should take place sooner rather than later. It probably is in the interest of any bidder to prevent a failed first attempt as that would mean an agonising 12 months’ wait to make a second offer under regulatory requirements. By then, so many things would have changed.

There is also the question of how much higher it would take for the bid to entice shareholders. A revised offer price may still leave many shareholders limping out with losses, as many have bought at well above $1.50 last year.

But all is not lost for shareholders – yet. So far, there has been a quiet but key player in Japan Land, Aizawa Securities – with the largest stake of 21.14 per cent – and which has been shoring up its stake in Japan Land over the past two months. After Mr Oei made his offer, Aizawa has consistently bought more Japan Land shares at over 60 cents a share. This begs the question what this move implies. Is Aizawa going to give up these shares to Mr Oei at a loss or is it contemplating making a competing offer?

As Mr Oei’s takeover offer draws to a close on Sept 12, shareholders will be keenly watching for the next moves by the tycoon and Aizawa.

Source : Business Times – 1 Sep 2008