June 9th Market Musings

There is much that fascinates me today. Newsflow on Murakami continues strong, with most writers wielding late, but probably deserved, tar & feathers. The market bounced in sympathy with an "outside reversal" afternoon bounce in the US markets, and an oversold technical condition after a classic "margin puke" in Japan. And finally, the largest-ever MBO in Japan was announced with Nomura Principal Finance teaming with management to take the Skylark Co. (TSE Code#8180) private at a price of YEV2500/shr.

Today's news on Murakami alledges that in addition to being a child-raper, a North-Korean spy, being responsible for global warming, and being covert operative for Al-Zarqawi, he back-stabbed, two-timed Livedoor's Horie but dumping shares in NBS, after he urged [and convinced, we are supposed to believe] Horie to buy them at higher and higher prices. We are meant feel sorry for Horie, and despise Murakami's lack of honor. But I feel like I am watching the Japanese equivalent of Jerry Spinger, and really feel no sympathy for either of them.

Following on this, the Asahi Shimbun reports on research by Kazunori Suzuki, professor at Chuo University's Graduate School of International Accounting, that suggests Murakami's activist style of investing actually destroys both companies and shareholder value. He's analysed the juicy and apparently undervalued companies in which Murakami's fund made investments and found that while their ensuing stock market performance was better than average, their ensuing business performance was pathetically worse than average on many important measures. The researchers suggest that this might be due to the distraction and low morale caused by the raiders' unwanted interest in the company, and therefore questions whether the activist has the company's long-term interests at heart. The skeptic (being me) would respond that the share price performance was aresult fo the raider/activists own buying upon the relatively illiquid markets of the smaller companies that caught his eye, and the true story will need to be seen only after MAC and other activists dispose of their holdings, or the researchers try to disentangle the subsequent share price performance due to "improved management and shareholder focus" from the insanely large market impact of incentivized fund managers jamming up the prices of these securities to collect ludicrously large performance fees. Furthermore, the skeptic might rightfully suggest that the companies in MACs portfolio suck. They are sh*t that sticks to your shoe, and they are cheap for a reason. OK, they were too cheap, but that is quickly resolved once one buys them up, and then what? You've gota large position in a sh*tty, illiquid company. It was no surprise that the companies that appeared "the cheapest" in the mid nineties all has "Martin Armstrong Repair Bonds" in the "marketable securities" line on their balance sheet, where REAL marketable securities should have been.

Finally, there is Skylark - Japan's largest MBO to-date. Rumour has it that the sale was the resulot of a typically Japanese family feud (similar to the Canadian McCain's), and the exit via a sale to Nomura and management was a mutually acceptable option. But THE PRICE for a pedestrian chain sushi-conveyors, buffets and dressed up noodle wagons?!?!? Granted, MBOs are "new" to Japan, and sometimes you have to learn by doing - even if the lessons are harsh. There is no lesson on the perils of "paying too much" than paying too much. And while I admire the engineering prowess, manufacturing organization, and long-term committment of Japanese corporations, I would also point out that Zaitech was invenyed in Japan, and there is good reason was THIS concept was never successfully exported!