JAPAN: Rakuten and TBS bury hatchet, agree to start tieup talks

Rakuten withdraws takeover bid, ending seven-week standoff

The Japan Times
Thursday, December 1, 2005

By Taiga Uranaka

After intense 11th-hour negotiations, Rakuten Inc. and Tokyo Broadcasting System Inc. agreed Wednesday to launch talks on potential business tieups after the Internet firm withdrew its proposal to merge with the private broadcaster.

With the compromise, mediated by Mizuho Corporate Bank Ltd., the two managed to put an end to a seven-week takeover battle.

Despite the truce, there is still a possibility Rakuten may resort to an aggressive takeover bid if it isn't satisfied with the upcoming talks.

"It is not good for both Rakuten and TBS to face each other in a hostile manner without holding talks," Rakuten CEO Hiroshi Mikitani told a news conference to explain the sudden shift in strategy.

However, he declined to say whether the agreement means he has completely abandoned his bid.

In a separate news conference, TBS President Hiroshi Inoue said his firm will hold sincere talks with Rakuten, but added he is skeptical they will result in a tieup.

"It is easy to speak of (the possibility of) fusing broadcasting with the Internet, but it is hard to actually realize this," he said.

The announcement came on the day TBS was scheduled to deliver its final response to the online shopping mall operator's merger overtures, which were made Oct. 13, along with the announcement it had secured a 15.46 percent stake in the broadcaster.

While TBS never publicly expressed its stance toward the proposal to integrate the two firms' management under a joint holding company, it was all but certain the broadcaster would reject Rakuten's offer.

Wednesday's agreement says Rakuten will reduce its stake in TBS to less than 10 percent by putting its shares in the trust of Mizuho Trust & Banking Co. and impose a freeze on its voting rights.

The two companies will set up a committee to discuss how to deal with Rakuten's TBS shares -- widely viewed as the crux of the negotiations -- and how they might force a business alliance. They agreed the talks will continue until the end of March, during which Rakuten will refrain from purchasing more TBS shares.

The firms agreed on a compromise apparently out of fear that a prolonged battle would only be a drain on themselves, according to industry insiders.

The merger plan was a big bet for Mikitani, who hoped to realize a fusion of broadcasting and the Internet. Rakuten has so far spent more than 100 billion yen to acquire a 19.09 percent stake in TBS.

While acknowledging the growing importance of collaboration between the two fields, TBS officials have been averse to forging an exclusive relationship with one partner.

In fact, it has already begun separate joint ventures with Mitsui & Co., Culture Convenience Club Co., Dentsu Inc. and others in Internet-related operations.

TBS officials had also been concerned that its public status as a TV broadcaster might be damaged by integrating with Rakuten, which has a securities firm under its wing.

A merger with Rakuten would also pose a problem to TBS's ownership of the Yokohama BayStars, because Rakuten owns the Tohoku Rakuten Golden Eagles and pro baseball bylaws stipulate that one firm cannot own two teams.

For many observers, the day's announcement was not only anticlimactic but also a replay of the battle between another private broadcaster, Fuji Television Network Inc., and Internet firm Livedoor Co. earlier this year.

Livedoor agreed to sell its take in radio broadcaster Nippon Broadcasting System Inc. to Fuji TV, and the two set up a joint committee to explore possible collaborations. Yet little has come out of some six months of negotiations.

If the talks between Rakuten and TBS only lead to token projects, the former might make fresh merger attempts, some observers said.

Date Posted: 12/1/2005