In Japan, Activists May Find Poison
August 8, 2007

TOKYO -- Japan's top court confirmed Bull-Dog Sauce Co.'s right to conduct poison-pill defenses, in a decision that could make it difficult for activist investors to force Japanese managers to change their ways.

The Supreme Court's upholding of a lower-court decision marks another setback for the New York-based Steel Partners Japan Strategic Fund, which had appealed, asking the court to disallow the poison-pill defense.

Steel Partners had been trying to take over Bull-Dog Sauce through a tender offer bid valid until Friday, but Bull-Dog's defensive steps are almost certain to cause the bid to fail.

Poison pills, or shareholder-rights plans, are designed to make a takeover more expensive through the issuance of huge amounts of stock.

The court ruling comes as merger-and-acquisition activity is increasing rapidly in Japan. But hostile takeovers remain rare because local companies are introducing antitakeover steps to avoid becoming targets. The top court's latest decision may make investors think twice before launching hostile bids in Japan.

According to the court ruling, Bull-Dog's stock warrant doesn't violate the principle of equality of shareholders. A Steel Partners spokeswoman said the fund will examine the ruling and consider how to respond, including what it will do with its continuing tender offer.

"The judgment has reaffirmed the principle of shareholder democracy... The key that it is the shareholders, not the directors, who must decide whether the acquirer is likely to damage corporate value," said Casper Lawson, head of legal firm Linklaters's mergers and acquisition practice in Tokyo.

The decision follows last month's move by the Tokyo High Court, a lower court, to support Bull-Dog Sauce, saying the U.S. investment fund is an "abusive" acquirer. Steel Partners, based in New York, then appealed to the Supreme Court.

Bull-Dog's defensive scheme gives all shareholders three equity warrants for each Bull-Dog share they own. But the firm bars Steel Partners from exercising its warrants, instead granting it 396 yen ($3.33) for each warrant -- a 2.3 billion yen ($19.3 million) payout for Steel Partners -- but making it impossible for the U.S. fund to take control of the Japanese company.

Bull-Dog already has started the poison-pill procedure, and the warrants will be redeemed Aug. 9.

The nearly three-month-long tug-of-war between Steel Partners and the Worcestershire-sauce maker has raised questions about the excessive cost of Bull-Dog's takeover defense. Yesterday, Bull-Dog revised downward its group net outlook to a 980 million yen loss for the year ending March, compared with its previous forecast of a 500 million yen profit.

Write to Hiroyuki Kachi at and Jamie Miyazaki at