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CUNDILL INVESTMENT CONFERENCE
PETER CUNDILL, SETH KLARMAN ET AL.
(continued from preceding page)
There's no law in Japan to keep shareholders from talking.
Cundill: You used to have to amend a whole lot of 13-Ds in the U.S. if you got a 4.9% position and you began to think about making some kind of unfriendly overture. Well, one of the reasons why Mike Price was able to do what he did with Chase in the way of moving along the process of realizing value was that in America, those restrictions were taken off so that you were free to talk to other shareholders without having to amend your filings.
Because the idea is so off the wall (the concept of a hostile takeover's almost unheard of in Japan), there's no restriction against cross-party talking. So you can do it....
Certain provisions come into effect when you get over a 4.9% position: You have to declare. You may have to tender for 51% of a company's outstanding shares. But once you acquire 51% of its shares, there are no follow-up provisions. So you can get the cash flow with 51%.
And it's beginning. A few corporate mergers have taken place - nearly all friendly, at least for now.
No hostile takeovers in Japan today, but there have been....
Cundill: But Japanese takeovers haven't always been friendly. There were hostile takeovers undertaken before and after World War II... as the Japanese system of crossholdings was being established. And there's been the odd proxy contest. So they're not entirely unknown.
During the Meiji Restoration in 1868, Japan chose the German commercial code as their model. But following World War II, during the U.S. occupation, much of the U.S. commercial code and practice generally was introduced.... Then, in the late '70s or early '80s, some Hong Kong groups bought into Japanese companies and, in effect, said, "Here we are. If you're not nice to us, we'll be mean to you."
There were four cases. And in three of the four cases, they got taken out at nice profits. In the fourth, management ran for cover and got the company designated as a national treasure of sorts - similar to the communications business or the Canadian banks. So foreign shareholders could only buy so much. And then the valuations got so [high] that the practice stopped.
AND SECURE DIVIDEND YIELDS > INTEREST RATES.
I can sum it up in two words: "mind blowing".
Cundill: Also, I'm sure the kind of conversation that we're having today about potential takeover work in Japan is being duplicated in Hong Kong, the U.S. and elsewhere. The [significance of the] fact that you can actually go off, buy a mess of these things and get your dividend covered [is not lost on everyone]...
Granted there are tax questions that come into play. And they do have very high taxes, special provisions, etc., which impact how you do a lot of the structuring. However, most important is the cost of money. And then the fact that they're trading below net cash is nothing less than mind blowing!
Dividend yields actually exceed short-term interest rates.
Cundill: Cash is a terrificthing to have. But today, Japanese companies earn less than 1% on their deposits - closer to 1/2 of 1%. In some cases, they're getting zero. Also, nearly all of these companies are paying dividends of 1% to 1 - 1/2%. The last time you could get a dividend yield that exceeded the short-term cost of money in the U.S. was during the late '40s or early '50s....
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