Wednesday, October 19, 2005

Cerberus buys Seibu

In another coup for Cerberus, the U.S. hedge fund is set to become the biggest shareholder in Seibu Railway with up to a one-third stake (Reuters). Cerberus and a unit of Japanese securities broker Nikko Cordial Corp. will invest up to 160 billion yen ($1.4 billion). Media reports said that the two would inject 80 billion to 90 billion yen into the group's core firm, Kokudo Corp. It is unclear why Cerberus beat out Morgan Stanley and Goldman Sachs, who earlier this year reportedly prepared bids as high as $19 billion and $14 billion respectively - buying out a $13.3 billion debt load - but Seibu Railway apparently liked Cerberus’ “solid and detailed” proposal.

Cerberus’ previous investments in Japan include a 65 percent stake in transport and hotel company Kokusai Kogyo, which it acquired in 2003. Cerberus also owns a majority stake in Japan's Aozora Bank, formerly the state-owned Nippon Credit Bank (assets: $43.5 billion). A recent BusinessWeek profile (archive) on the company and its secretive founder Steve Feinberg reported that the innovative acquisition strategies had helped the fund accumulate a ‘mind-boggling’ worldwide corporate empire. Its has more than $16 billion of investors' assets on its books -- almost double what it had in 2003 -- it has bought 28 companies and snapped up stakes of at least 15% in an additional 15 over the past decade.

Seibu is the hub of a business empire built by Yoshiaki Tsutsumi, who in 1990 was dubbed the world's richest man by Forbes magazine. The company last year posted an $81 million loss, saw the ouster of Chairman Tsutsumi, 70, and was delisted from the Tokyo Stock Exchange for reporting violations. Tsutsumi was arrested on Mar. 3 following his indictment on charges of insider trading and falsifying financial statements. He is now out on bail (see this BusinessWeek article (archive) on the fall of Seibu and Tsutsumi).

But the Seibu group still holds valuable assets: in addition to operating one of Tokyo's main commuter railroads and a rail-freight operation, the company runs dozens of hotels (the Prince Hotel Park Tower is one of its latest properties), golf courses and ski resorts, an amusement park in Tokyo, and the Seibu Lions, a Japanese pro baseball club. Its railway business alone is estimated to generate about 30% of sales and 50% of operating profits, while the group overall has positive cash flow of around $236 million. One of the groups' largest assets, the Kokudo HQ building, was sold in August (see my previous post). But with the extensive portfolio still in place, it looks like another REIT may be in the offing.

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