Thursday, July 19, 2007
"Megan's Law" for Activists in Japan
"Megan's Law" is well know in America, meant to warn the community of convicted child-molester felons potentially on the prowl in one's community. Apparently, once can sign up for "text-alerts" to one's cell-phone for such warnings.
Japanese courts have seemingly done the same to would-be rapist of Japanese corporations, Warren Lichtenstein and his Steel Partners Japan Fund, by branding them "Abusive Acquirers", and so permitting Bulldog management to fend off the undesired attention of their erstwhile suitors through dilutive warrant issuance. Tonkatsu, it would appear, will remain safely Japanese.
To suggest that the decision is a proverbial kick to Mr Lichtenstein's (and his investors) so-called crown-jewels would perhaps be an understatement, evidenced by the market's post-ruling response (see two price graphs above and left). And this price destruction appears to be BEFORE Steel's liquididation, unless they've used stealth OTC or derivative sales to cover their material sales.
Cassandra will admit to experiencing some schaudenfraude here. Not because she feels so strongly that "Abusive Acquisition" is altogether a bad thing (though I will admit to admiring some of the positive externalities that result from more harmonious capital-labour relationships and longer-term investment horizons), but rather because she feels that Steel Partners (and others using similar so-called fiduciary positions as "agents" combined with the economics of market impact in tandem with incentive fee accrual, is simply rather disingenuous when so-gamed, and in the process attempting to profit from something that IMHO is financial chiccanery at its most cynical. Well played? Yes, Steel has played well, certainly until this court decision.
But the real result of this decision, is that the market (and more importantly Steel's external investors) can now see the difference between the mark-to-market of their positions, and the likely "realizable value" of their positions should they be denied what they seek, and try to exit. The result is sobering, not least because said investors are likely to have already paid large incentive fees on the mark-to-market of the portfolio. I will admit it is not fraud on the scale of Lauder's "Lancer" fiasco, though one should take the opportunity to compare the similarities, at the same time as they consider the differences.