As discussed last month, Steel Partners’ bid for Sanko Sangyo at a premium to the agreed management buyout was a particularly interesting case due to management aligned shareholders comprising a majority of the shareholder register.
As it turns out, sadly but not surprisingly, Steel Partners’ bid was thwarted by a Board of Directors uninterested in achieving the best outcome for shareholders. The directors reinstated their recommendation that shareholders tender into management’s low-priced bid as soon as acceptances of >1/3 of the outstanding shares were received for the MBO tender.
This was on the basis that Steel’s potential bid could no longer succeed.
Of course, this is nonsense, as management’s bid required 2/3 acceptances itself in order to proceed, and board support to ensure financing availability! If the directors withdrew support for the deal entirely, then the MBO would be off the table, and Steel’s bid could have proceeded.
The MBO has now reached the required 2/3 majority and will proceed without a competing tender from Steel.
The lesson here, is that sadly in Japan principles of good corporate governance generally give way to a “might makes right” dynamic. In these circumstances “might” refers to the proportion of the shareholder register aligned with management.
Investors should not expect shareholder interests to be respected where management is entrenched due to aligned shareholdings.
