Oh, how quickly things can change in the investing world. A few months ago, it appeared that a merger between optical giants Hoya (OTC BB: HOCPY.PK) and Pentax (OTC BB: PXCPF.PK) would be smooth sailing. When the presidents of both firms give joint interviews in newspapers, it's natural to assume that everyone is on board. But apparently, things weren't going as smoothly as I had assumed.
According to numerous reports the last few days in The Nikkei, the merger has been voted down by Pentax's board. In response, Hoya will launch a tender offer. A quick glance at the investor-relations sites for both companies and their respective list of press releases shows one brief press release for each company, issued only in Japanese. But the press releases don't convey some of the details and numbers floating around in the news.
The first complaints arose last week, from shareholders unhappy with the share ratio employed in the merger. Next up, The Nikkei reported on Sunday that the Pentax board voted the merger offer down last week because of the shareholder complaints. (Kudos to the Pentax board for actually listening to its shareholders.)
Of Pentax's eight board members, only two supported the deal; one of them was Pentax President Fumio Urano. There are now reports that Urano will quit prior to the shareholder vote, and that his replacement is opposed to the deal with Hoya.
Shareholders don't vote until June, but in response to these developments, Hoya is believed to be raising its offer for Pentax by 20%, to 770 yen, or $6.47, per share, and paying cash via a tender offer instead of offering shares in a merger. However, none of this has been officially announced by Hoya yet.
Additional stories in The Nikkei and Bloomberg state that Pentax's board might be opposed to a tender offer as well, given fears that Hoya is focused on the potential of Pentax's medical business, and far less interested in Pentax's camera business. Given that the camera business must slug it out with low-priced Chinese products and deeper-pocketed competitors such as Canon
This is the third merger or acquisition deal in Japan the last few months to undergo significant changes or get killed. The first involved Ichigo Asset Management uniting shareholders to squash a deal between Tokyo Kohtetsu and Osaka Steel, because the premium was too small. The other deal was the planned acquisition of Nikko Cordial by Citigroup
This battle, while far from over, seems to signal that Japanese shareholders are growing ever more vocal in asserting their rights as owners. The conflict may also get more interesting, because the most recent quote for Pentax shows the company trading at 800 yen per share, already above the 770 yen Hoya is rumored to have offered.