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3 The fall of a Japanese business
iconoclast By Hisane Masaki
stable counters.
As a result,
while the Tokyo Stock Exchange's First Section -
where large companies are listed - fully recovered
from the "Livedoor shock", share prices on Japan's
three markets for startup companies - Mothers,
Jasdaq and Hercules - are still struggling at
between 40% and 60% of what they were immediately
before the prosecutors' raid on Livedoor, which
led to
the
arrest of Horie and other executives several days
later.
Fallen 'Hills Tribesman' Livedoor, which operated an Internet portal
and offered Web-related services, quickly rose
from an unknown startup to a household name,
thanks largely to Horie's charisma. A dropout from
the prestigious University of Tokyo, Horie made
waves as a cocky entrepreneur always dressed in
T-shirts, instead of dark suits. He often appeared
on television, became a tabloid regular with a
penchant for dating actresses, and nearly won a
parliamentary seat in an election he fought with
unofficial backing of the ruling Liberal
Democratic Party.
His high public
visibility drew a large number of individual
investors - about 220,000 - to Livedoor shares.
And by using stock splits to make Livedoor shares
more affordable, the company appealed directly to
individual investors. The Livedoor investors, many
of them amateurs in the stock market, incurred big
losses when the shares nose dived after Horie ran
into legal trouble in January 2006. Livedoor was
delisted from the Tokyo Stock Exchange's Mothers
market in April.
Horie defied old-guard
Japan Inc, long dominated by cross-shareholdings
in which companies held stocks in one another to
shut out outsiders. Livedoor expanded rapidly
through aggressive mergers and acquisitions and
diversified into everything from software
development to securities and e-commerce. Horie
unsuccessfully tried to buy a professional
baseball team and take over Nippon Broadcasting
System Inc (NBS), a radio broadcaster that is a
key part of a powerful media conglomerate led by
Fuji Television Network Inc.
In Japan Inc,
which is still dominated by gray-haired leaders,
Horie was scoffed at as a brash novice, although
he was praised by many ordinary Japanese,
especially young people, as a courageous
innovator. After being arrested, Horie claimed
that he was framed by the jealous old-guard elite
for rocking the boat. He once said, "All the evils
come from aged business managers."
Horie
became widely known as a leading member of what
was dubbed the "Hills Tribe". Livedoor is
headquartered at Roppongi Hills, a huge, posh
skyscraper built in 2003 in downtown Tokyo.
Successful venture firms, many in the
information-technology industry, have moved into
the Roppongi Hills complex, making it a symbol of
success.
Less than five months after
Horie's arrest, Yoshiaki Murakami, another
well-known "Hills Tribesman" and owner of the
so-called Murakami Fund, was also arrested on
charges of violating the securities law.
Murakami's case is linked to investigations into
the Livedoor case because he was charged with
insider trading in connection with purchases of
shares in the radio station NBS.
The
now-defunct Murakami Fund bought a large number of
NBS shares between the autumn of 2004 and in
January 2005 after obtaining insider information
that Livedoor would buy shares of NBS, then Fuji
Television's biggest shareholder. In February
2005, Livedoor launched a takeover attempt for NBS
by taking advantage of a trade loophole and buying
shares in after-hours trading, ultimately buying
more than half of the radio broadcaster before
selling the stake to Fuji Television.
Like
Horie, Murakami, now 47, rose to fame - and wealth
- in non-traditional business areas. They both
shook up the conservative Japanese business
environment. They both frequently appeared on
television to express their views. Their
iconoclastic rhetoric and style, while fascinating
many young Japanese, made many elder business
leaders frown. The most noticeable difference
between the two was their contrasting attire in
public places. Murakami donned orthodox business
suits.
Murakami became widely known as a
US-style corporate raider, the kind who takes big
stakes in companies and demands changes aimed at
boosting their stock prices. In a country where
companies traditionally have held one another's
shares to cement working relationships, he was a
vocal champion of maximizing return on capital. He
vociferously advocated corporate reform and urged
companies to generate value for shareholders.
The Murakami Fund tried - but eventually
failed - to acquire Hanshin Electric Railway Co,
an Osaka-based railway operator with valuable
landholdings Murakami thought weren't reflected in
the share price. Japanese public sentiment that
Murakami's ambitions were becoming excessive grew,
since the railway firm owns one of the most
popular professional baseball teams, the Hanshin
Tigers. Fearing a takeover by the Murakami fund,
Hanshin engineered a takeover offer from local
rival railway firm, Hankyu Holdings Inc. After
Murakami's arrest, Hankyu's takeover of Hanshin
went through.
The Murakami Fund scandal
fueled debate in Japan over the widening gap
between rich and poor or, more broadly, between
winners and losers in society, which opposition
parties and some critics blame as the negative
byproduct of former prime minister Junichiro
Koizumi's reform programs.
Shaken
investor confidence The Livedoor case
rattled the Japanese stock market, and the
subsequent scandal involving the Murakami Fund
dealt yet another blow to public confidence in the
fairness of securities transactions. Public
criticism grew that the government had failed to
monitor adequately securities transactions and
other financial practices.
The Diet
(Japan's parliament) enacted a law last June to
tighten oversight of investment funds amid growing
criticism that the operations of many investment
funds are shrouded in secrecy and calls for
stricter and clearer rules governing the
securities market.
Analysts say a big part
of the problem is that Japanese regulations
governing securities transactions aren't clearly
spelled out, leaving many gray areas. Oversight
also is lax, they say. Both Horie and Murakami
shrewdly exploited loopholes in the law and
regulations to pursue their business ambitions.
Japan has seen a spate of scandals
involving securities-law violations by big-name
firms in recent years. But so far, there has been
no move to create an independent and powerful body
that
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