Cerberus Won't Sell Shares in Seibu IPO

TOKYO--The tense relationship between Japanese railroad and hotel company Seibu Holdings Inc. and U.S. private-equity investor Cerberus Capital Management will persist, after Cerberus decided not to sell shares in Seibu's initial public offering because the price was too low, a person with knowledge of the matter said.

Seibu said Wednesday it is seeking a price between Yen1,600 and Yen1,800 ($15.68 to $17.64) a share for its initial public offering, beneath earlier guidance, as the weak Tokyo market weighed on the deal.

According to a regulatory filing, Cerberus will continue to hold its current 35.4% stake, reversing an earlier plan to sell 15.5% of the company's shares in the IPO. At the expected pricing of Yen2,300 a share, the sale would have netted Cerberus more than Yen100 billion ($986 million).

After years of public battle, Cerberus' stake sale would have marked the end of a rocky relationship between the two companies, though Cerberus would have kept part of its stake to avoid flooding the market.

For Seibu, relisting has been a long-standing goal, since its core entity, Seibu Railway Co., was delisted from the Tokyo Stock Exchange in December 2004 for making false statements on its securities report. After the delisting, Seibu received a capital injection of about Yen100 billion from Cerberus, along with Yen60 billion from domestic financial institutions.

The relisting plan had been on hold for more than a year and a half as Seibu and Cerberus quarreled over how it should be handled. While Seibu felt its U.S. investor had been demanding an inappropriate level of involvement in the IPO process, Cerberus questioned Seibu's corporate governance.

Seibu said in the regulatory filing that its relationship with Cerberus has improved: "At this point, Cerberus has no intention of getting involved in our management or boosting its stake and has shown support for our business plan," Seibu said.

A move by Cerberus to boost its stake in Seibu through a hostile tender offer was rejected by shareholders. The tension between the two companies has eased since late last year as Seibu President Takashi Goto and Cerberus Chief Executive Steve Feinberg started talking. The two men held a few phone conversations this year, people familiar with the matter said.

Seibu still plans to go public on April 23 in a deal that would value the company at around $6 billion. Seibu's other major shareholders, including Norinchukin Bank and Development Bank of Japan Inc., will sell its shares, worth up to Yen50 billion ($490 million). The final offer price will be announced April 14 as planned, Seibu said.

Bankers say the poor IPO performance of Japan Display Inc. and Hitachi Maxell, Ltd. pressured Seibu's listing. On March 18, Hitachi Maxell dropped 14% below its IPO price after its debut on the Tokyo Stock Market. The next day, Japan Display, the world's biggest maker of screens for smartphones and tablets ended about 15% lower.

The Nikkei Stock Average is down 12% this year, amid low trading volume, and ranks as one of the world's worst-performing major markets.

Cerberus may sell its stake six months after the listing when the mandatory lockup for pre-IPO shareholders expires, the person familiar with the matter said.

A Cerberus official in Tokyo declined to comment.

Seibu is one of a dwindling number of investments left for Cerberus in Japan. Last year, Cerberus, which started investing in Japanese companies in the late 1990s and early 2000s, sold its 58% stake in midsize lender Aozora Bank, Ltd., largely exiting a volatile 10-year investment. Earlier this year, it also decided to sell its entire stake in property operator Kokusai Kogyo Co., Ltd. for about $1.4 billion, according to people familiar with the matter.

Write to Atsuko Fukase at [e-mail]

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