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Descente seen facing uphill battle against Itochu hostile tender offer

Jiji Press TOKYO (Jiji Press) — The confrontation between the management of sportswear maker Descente Ltd. and its top shareholder, major trader Itochu Corp., has developed into a hostile tender offer.

Through the tender offer, Itochu plans to increase its equity stake in Descente from 30.44 percent to 40 percent, aiming to revamp the management of the target company.

Descente has expressed its opposition to the bid, but the firm is expected to face a tough battle against Itochu. The tender offer is scheduled to run until March 14.

Descente ran into financial difficulties in 1984, saddled with massive inventories, and faced a problem again, in 1998, when its licensing contract with multinational sporting goods maker Adidas expired.

The company overcame the two crises, thanks to assistance from Itochu.

But their rift started to deepen after current Descente President Masatoshi Ishimoto, who is a member of the firm’s founding family, took up the post in 2013.

Descente’s operations in South Korea, which generate about half of its overall sales, remain robust. But an Itochu executive noted that the success of the South Korean operations was due to the leadership of an Itochu official who has served as president of Descente.

Growth in Descente’s Japanese operations has been very slow compared with rival sportswear makers, the Itochu executive also said.

In the tender offer, which was launched on Jan. 31, Itochu set the per-share acquisition price at ¥2,800, about 50 pct higher than Descente stock’s closing price of ¥1,871 on the first section of the Tokyo Stock Exchange on the preceding day.

“Descente has a high growth potential,” said Tsuyoshi Hachimura, chief financial officer and senior managing executive officer of Itochu. If its management is revamped, Descente would be able to boost its profits and share price, he added.

Meanwhile, the Descente side aims to cope with the situation through dialogue. “We’ll ask Itochu to come to the negotiating table,” Descente executive Kenichi Tsujimoto said.

In Japan, many of the past hostile tender offers ended unsuccessfully. In a 2006 case in which Oji Paper Co. bid to buy Hokuetsu Paper Mills Ltd., now Hokuetsu Corp., major trader Mitsubishi Corp. emerged as a white knight to block Oji’s move.

The hurdle for the success of Itochu’s tender offer for Descente appears to be relatively low because the proposed share acquisition price is high and only about 10 percent of all outstanding Descente shares is targeted in the bid, analysts said.

To make the bid fail, Descente needs to take bold countermeasures, such as finding a powerful white knight, they said.Speech

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