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Try to buy a baseball team, set off a financial panic - UPDATED
2006-01-23 10:05
by Bob Timmermann

If you only check the sports section, you may have missed the problems that have been going in Japan with the demise of Livedoor. Turns out that the brash CEO of the company, Takafumi Horie, decided he wanted to buy the then Kintetsu Buffaloes in 2004 (they merged with Orix last year and became the Orix Buffaloes.)

But Horie has played fast and loose with splitting his company's stock. When Horie tried to buy the Buffaloes as well as Fuji TV, Japanese authorities began a thorough examination of his finances. And it turns out that Livedoor is not worth much of anything. Last week massive selling of Livedoor stock caused the Tokyo Stock Exchange to close early because the computer systems couldn't handle all the sale. There are an estimated 289 million sell orders for this stock unfilled.

100 for 1 splits?!?!

Here is the relevant part of why this was shady.
Under old Tokyo Stock Exchange rules, a stock split did not take effect until stock certificates became available about 50 days after it was announced. The waiting period created a psychological impetus to buy. As of this month, splits take effect on the next trading day.

As a comparison, Microsoft has had nine splits since it started trading in 1987 and none have been bigger than 2-1. By my math, if you owned 10 shares of Microsoft in 1987, you'd have 1920 shares now. If you bought one share of Livedoor in July 2001, you would have had 30,000 shares by August 2004.

Livedoor is now a "Pink Sheet" stock and is listed at $2.00/share.

Update - Japanese authorities arrested Horie Monday for securities fraud.

2006-01-22 12:05:14
1.   Mark
It's an interesting story in that it sort of-- but doesn't really -- parallel the Internet bubble in the US of 97-00. I wonder if we'll see Livedoor stock trying to do a reverse-split to maintain its share price. (One of my old gig's competitors did a reverse-split of 1-20 shares, meaning for every 20 shares you owned, presto, now you owned one share)
2006-01-22 12:09:10
2.   Bob Timmermann
I had to double check the story because the Japanese write up stock splits backward. The linked story kept referring to 1-to-100 splits.

But a full count in Japan is 2 and 3, so I guess it's not surprising.

2006-01-22 18:37:18
3.   Gary Garland
What is interesting to me is that many segments of the business press both overseas and in the U.S. are accusing the Japanese government of persecuting Horie because the old guard that has kept Japan's economy stagnant the last 15 years won't conform to new global economic realities. In fact, there was an aritcle in The Economist saying just that this past week.

Along with Yoshiaki Murakami, a former bureaucrat turned shareholder activist, Horie has indeed attemtped to inject new energy into the economy by endeavoring to get it to act like companies in the U.S. do. That Horie appears to be more or less a securities hustler is almost beside the point in a way
because the Fuji-TV deal, Murakami's dealings with Fuji and Hanshin Electric Railways and
the Hiroshi Mikitani-TBS matter are now forcing the old boys club in Japan, where stocks were held not for investment so much
as a kind of show of faith by business partners, to look at doing business in a new way (or at least the way we have been doing business here in the U.S. for decades).

There are also so-called "vulture capital" firms from the U.S. (Ripplewood LLC, etc) now
making major inroads into Japan to pick off ailing companies that have been allowed to carry on far past their expiration dates due to cozy relationships with the government. The Daiei supermarket chain comes to mind in this regard. The Japanese economoy thus needs more Hories to inject some energy and renew its entrepeneurship, except ones with more self control who aren't willing to play so fast and loose with the law. Live Door isn't quite Enron and Horie isn't Ivan Boesky, either. This scandal isn't going to leave the far reaching economic damage that Enron did nor will it entail the near fatal debt loads for banks that Boesky did with his junk bond deals. Sure, it created some problems in the stock market, but that will pass as a quirky blip on the radar screen over time.

But it is a warning. Either get with the times or perish. And that message needed to be sent to the doddering old guard in Japan.

2006-01-22 18:55:16
4.   Bob Timmermann
Thanks for the comment. I know that from your end you have a much better perspective on this issue.

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