TeamJapan 1 - Activists 0

It was a week in which things did not go as planned - one that has seen activists in Japan licking their wounds. Steel Partners [perhaps happily] lost their bid on the legality of Bulldog's takeover defense. TCI was impolitely rebuffed by BOTH management and other shareholders and watched the value of their 10% J-Power stake fall yet further, whilst DaVinci was foorced to up their bid for TOC perhaps to a level that pays away most of the juice in the deal.

Steel perhaps came out best, winning a partial victory by goosing the price to YEN 1650 (+30% on their existing position) for the June 30th quarter-end without having to buy a single share additional. Whether this was cleverness or dumb luck pprobably depends upon whether one believes Warren Lichtenstein really wants to own 100% of Tonkatsu-central. I believe, somewhat cynically, he knew full-well that management would resist, and they wouldn't need to put any more cash up to increase the market value, and hence SPJs accrued performance fees. Slimey, but clever from the point of view of the IM. Moreover since most of his investors are agents of faceless institutional investors, and not principals, they too are more-than-happy to ride the coattails of a juicey mark-to-market gain. Given the revolving door in the FoF business anyways, they probably won;t be around when SPJ must sadly dispose of their large holding into an illiquid market with buyers until the Yen800 to 1000 level or so.

As for TCI and their foray into 9513, I don't know what thhey could have been thinking. Maybe this is their training ground for green activists to cut their teeth without doing too much harm. Perhaps their end-of-year 2006 and Mar 31st ramps were sufficient reward from an incentive-fee accrual point of view to offset present mark-to-market pain. Perhaps thhey are sucking the shorts (it is literally impossible now to borrow the stock) before they do a "Torquemada" (fear & surprise!!) raid and increase their holdings to 15 or 20 coinciding with their next incentive fee mark. In any event for June 30 they are stomaching a 30% markdown, AND sitting on 10% of a company and management (and shareholder-base) that has told them to "piss off!" It will cost them another 20% (at least) to dispose of their present holding in the current market, even if they work stealthily.

And then we have the hostile DaVincis making life miserable for the Ohtani's, not only spoiling their "take-under" of TOC, but now, unwilling to take "No!" for an answer. The Ohtani's hilariously wanted it at 800 for themselves, but since they can't have it, now say 1100 is not in shareholders best interests. So DaVinci has raised their bid for TOC to YEN 1300. I know not what its worth, though reckon that it is fast approaching fair-value. What I do know is that relatively speaking, it's almost certainly overvalued in comparison to other static lowly-leveraged Tokyo portfolios be it Toho Real Estate (8833), Toei's,(9605), or Osaka's Keihanshin (8818).

But the gaijin continue to pile in to "cheap stocks", with nearly everyday revealing more reporting a greater-than 5% wodge of this-or-that. Make no mistake: I DO think there is absolute value out there. I just think the investors are underestimating the amount of social resistance, and the willingness of all segments of Japanese society to circle the wagons in defense against the greedy foreign carpetbaggers.They will tolerate them as passive investors, but they will not shower them with gifts, unless TeamJapan judges it is in their interests to do so, and Warren Lichtenstein is not a role model they are, as yet, desirious of.

In the meantime, it will be a race, for as resistance remains firm, global liquidity ebbs, and asset values compress, so too will the appetite for a lengthy hard fight to extract value from chheap but pedestrian assets. Of course, "friendlies" may still get done, as will the flotsam & jetsam that needs to be divested to real trade buyers or PE/LBO/MBO funds who want to take whack at rehabilitating something. But with Japanese buyers less-than-willing to go hostile, and TeamJapan less-than-willing to concede any sectors whatsoever to foreign domination or competition, it seemingly leaves but a few middle-market and small-cap deals in play. Maybe I am reading this wrong, but I think that this is round-one, and since most of the gaijin capital is NOT sticky, and since like with most things that require patience and a long-view, the gaijin are less likely to emerge triumphant.