The warrant defence against Steel Partners’ tender offer (2007)

Between shareholder equality and corporate value

The Bull-Dog Sauce case stands as the precedent showing that a Japanese company’s defence against a hostile takeover is permitted only after passing through two gates: the will of the general meeting and the judgement of the courts. The company wrapped a discriminatory mechanism aimed at Steel alone in the form of an equal allotment to all shareholders, in the support of more than 80% of the voting rights, and in cash compensation to the other side — and so narrowly avoided a collision with the principle of shareholder equality. What it protected was the very solidity of the finances built up over fifty years from the memory of the reorganization law. Yet the victory of the defence answers nothing about why that solidity attracted an activist in the first place.

What remains is the question of whom corporate value is for. The preserved assets were, to management, a safety valve held against crisis; to the acquirer, surplus that ought to be returned to shareholders. The Supreme Court approved the defence, but the criticism that the assets were not reflected in the share price was left hanging in the air — and twelve years later the company itself began to answer it by doubling the dividend. A company that repels a hostile bid goes on, over time, to implement the claims of the party it repelled: this case continues to pose a question about shareholder equality and corporate value that cannot be measured by the success or failure of the defence alone.