The Japanese authorities are looking to impose tougher restrictions on the foreign ownership of broadcasting companies, which are already subject to Foreign Ownership Limits (FOLs). At the same time, the Financial Services Agency (FSA) in Tokyo is trying to restrict off-hours trading. These moves were prompted by Livedoor’s acquisition of Nippon Broadcasting System (NBS) with Euros 80 billion in convertible bonds lead-managed by Lehman Brothers Japan.
“The cause of the dispute is that there has been a distorted cross-shareholding relationship between Fuji Television Network Inc and NBS, in which the share value of NBS in Fuji TV is larger than the market capitalization of NBS itself,” explains a spokesman for Bank of Tokyo Mitsubishi (BTM). “What this means is that anyone who purchased NBS’s share would be able to control Fuji TV.”
It was to avoid this fate that Fuji launched a tender offer designed to turn NBS into a subsidiary in January this year. However, the TSE-listed ISP Livedoor used the opportunity to increase its stake in NBS to 35%, 29.6% of which was acquired through the TSE’s off-hour trading system. Livedoor’s stake in NBS is now over 40%, and it has financed the acquisition by the issue of the convertible bonds.
“If Lehman converts the convertible bonds to equities, Lehman may be able to hold more than 40% of Livedoor’s stake if it combines the converted shares with the shares it already has, depending on the conversion price,” continues the BTM spokesman. “If Livedoor acquired a 51% stake in NBS, Lehman’s indirect control over NBS would exceed 20%. In such a case, there would be a situation where a foreign company exerts such influence over the management of NBS that it infringes the FOL. According to the Radio Law of Japan, foreigners cannot hold over 20 percent of a broadcaster’s shares.”
Japanese law requires cancellation of a broadcaster’s license if a foreigner controls more than 20% of the stock. Which is why the Ministry of Communications is now looking to expand FOL regulations to cover a Japanese company affiliated with a foreign corporation, and why the FSA, noting that Livedoor used off-hour trading to acquire 30 % of NBS’s shares, the FSA has started to work on imposing restriction on TSE’s off-hours trading system.
The BTM spokesman says that, under the Securities and Exchange Law, companies do not need to make any special disclosure following the acquisition of shares over the TSE’s off-hours trading system, since off-hour trading is considered as trading within the stock exchange. As a rule, however, off-hours trading is usually used by institutional investors for large-lot transactions to prevent a fluctuation in share prices.
The use of it by Livedoor for a rather different purpose has prompted calls from Japanese politicians and business leaders for restrictions in the use of the off-hourd trading system, on grounds that if it is used for corporate acquisitions, market transparency will be eroded. The FSA is expected to require purchasers to disclose the value and purpose of acquisitions via the system.