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Restructuring, shot of capital saved Seibu

Ryuzo Suzuki/The Yomiuri Shimbun

Takashi Goto speaks to The Yomiuri Shimbun.

The Yomiuri ShimbunSeibu Holdings Inc. marked a new business start in April by transferring its group headquarters to DaiyaGate Ikebukuro Building in Tokyo. Having overcome a series of scandals that surfaced in the 2000s, the Seibu group company is now geared up for new business development. For this installment of Leaders, a column featuring corporate management and senior executives, Takashi Goto, president of Seibu Holdings Inc., explains his strategy for enhancing his company’s corporate value.

I joined the then-Dai-Ichi Kangyo Bank after graduating from university. After the bank integrated with two other banks, I took charge of financing examination and sales at Mizuho Corporate Bank. When the Seibu group’s business-related scandals came to light, I joined the group’s management reform committee, as Mizuho had served as Seibu’s main financing bank. I joined Seibu Railway Co. in 2005 to rebuild the group.

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  • Ryuzo Suzuki/The Yomiuri Shimbun

[Seibu group’s executives were arrested in 2004 over payoffs to corporate racketeers and making false statements in securities reports. Yoshiaki Tsutsumi, the group’s leader, was forced to resign and Seibu Railway Co. was delisted from the Tokyo Stock Exchange First Section.]

After losing its charismatic manager, the group plunged into a management crisis and business was on the verge of collapse.

Employees became demoralized. I had thorough discussions with them in order to understand their concerns and listen to their complaints. I met them at the head office on weekdays and visited their workplaces at the railways and hotels on weekends.

As a result, I was able to envision rebuilding the group by establishing a holding company, in order to maximize the advantages of running a railway company as well as hotel and leisure businesses under one umbrella. I also realized that more than ¥100 billion was necessary for the rebuilding effort.

Mizuho Corporate Bank initially considered conducting a debt equity swap to improve finances. However, such an undertaking cannot raise funds for investment. Although I previously worked for the bank, I resolved to challenge the bank’s idea through discussions. We eventually came up with measures, different from the bank’s original proposal, of reorganizing the Seibu group and receiving a capital injection of about ¥160 billion provided mainly from U.S. private equity firm Cerberus Capital Management LP.

In addition, from the more than 160 hotels, golf courses and other facilities the group had, we slashed more than 70 by either selling or closing them. We also asked many employees to accept early retirement. It was an agonizing decision, but these painful reform measures were essential to our revival.

[Despite overcoming the business crisis by securing increased capital, difficulties continued. In 2011, the Great East Japan Earthquake hit, while a difference of opinions emerged with Cerberus Capital Management, then the largest shareholder, over how to achieve relisting.]

After effecting the group’s reorganization and capital injection, we made a move to relist. However, the huge earthquake affected our Prince Hotel chain operations in Tokyo, pushing its guest room occupancy rate down to the 30-percent level, and Seibu Railway Co. could not operate on a normal schedule for about a month because of rolling blackouts.

Moreover, regarding our relations with Cerberus Capital Management, the two sides could not agree on how to relist, which increased tensions between us.

Challenged by investment fund

[Seibu group confronted Stephen Feinberg, then Cerberus Capital Management’s CEO, who made various written demands and even launched a hostile takeover bid. He also publicly raised the issue of company ownership.]

Seibu Railway Co. was delisted because the company for many years failed to comply with laws and regulations, due to lack of internal control.

I was hoping to relist on the Tokyo Stock Exchange in a transparent manner to compensate for troubles caused to stakeholders such as shareholders, residents living close to Seibu Railway lines and business customers.

Cerberus Capital Management demanded a different approach. The company wanted us to abandon five train lines, including the Seibu Chichibu Line, and consider an option to sell the professional baseball team, the Saitama Seibu Lions.

Amid the negotiation deadlock, the company embarked on a hostile takeover bid in 2013. It sought to take a majority stake at a general shareholders meeting and place their choice of people on the board of directors in order to effectively have a grip on management.

[The board of director member candidates recommended by Cerberus Capital Management included high-profile figures such as former U.S. Vice President Dan Quayle, former U.S. Treasury Secretary John Snow and former commissioner of Japan’s Financial Services Agency Hirofumi Gomi.]

To protect the Seibu group from the takeover bid, we hung posters inside the Seibu Railway lines’ train cars asking the public for support. As we called for it as an entire group, the takeover bid failed and Cerberus Capital Management’s proposal for changing the board of directors was rejected at the shareholders meeting.

We then reconciled and resumed friendly relations. The U.S. company finalized the selling of its shares in Seibu Holdings in 2017. Looking back at that time, even though we went through tense situations, I appreciate the support the company gave the Seibu group over the about 11½ years since it decided to finance us. I think our employees also learned valuable lessons from the relationship’s ups and downs.

Overseas business is key

I would like to appreciate work that is not necessarily noticeable but essential for business. I was a wing for my university’s rugby team. Wings are positioned to receive passes and score tries.

A player scoring a try gains people’s attention. However, the most valuable player, in my view, is the one who courageously runs into opposition’s territory, endures harsh struggles with rival players and passes the ball to a teammate.

Without such team play, we can’t move forward to score tries.

In business, producing a result, or scoring a try, is of course important. However, this requires people performing their roles, without thinking about attracting much attention, no matter where they are positioned. Companies are like rugby teams in that they both need various players to perform well.

[Due to population decline, Seibu group’s core businesses, such as operating hotels and railway services, have faced severe competition from other companies. Finding new sources of revenue will be a challenge.]

We will further develop our hotel business overseas. We acquired an Australian hotel management company and will open new premium hotels, under the brand name “The Prince AKATOKI,” in London and Guangzhou in China. The hotel and leisure business will be expanded into areas in North America and Southeast Asia.

Seibu Railway Co. completed elevating part of the railway track on the Ikebukuro Line, which connects Tokyo and Saitama Prefecture. We thus, to a large extent, resolved the issue of “unopened railway crossings,” level crossings where train gates are closed almost all of the time during rush hour. We will continue our efforts to enhance value for residential areas along Seibu train lines.

In April, Seibu Holdings and Prince Hotels Inc. head offices were moved from Tokorozawa in Saitama Prefecture to the new landmark building in Tokyo’s Ikebukuro district. Seibu Railway Co.’s headquarters operations will remain in Tokorozawa, where the company’s Ikebukuro Line and Shinjuku Line meet. I expect a new corporate culture will develop from our two bases.

Since I came to Seibu Railway Co. to rebuild management, I have been telling employees, “Day follows night.” When our shares were relisted on the Tokyo Stock Exchange in 2014, I said to reporters, “The sun shines on us from right above.” Nonetheless, as a newly relisted company, it was a new start and I also said, “We will make a fresh start as the sun rises again.”

Taking the transfer of our head office as an important opportunity, I would like to continually enhance our corporate value in order for us to be completely bathed in the sunlight.

-- Takashi Goto / President of Seibu Holdings Inc.

Goto joined Dai-Ichi Kangyo Bank after graduating from the Faculty of Economics at the University of Tokyo. After assuming various positions, including managing officer of Mizuho Holdings Inc. in 2000 and vice president of Mizuho Corporate Bank Ltd. in 2004, Goto joined Seibu Railway Co. in 2005 to rebuild the company. He took his current position in 2006.

-- Key Numbers

¥1 trillion

Seibu Holdings Inc. operates various businesses with its consolidated subsidiaries, including Seibu Railway Co. and Prince Hotels Inc. It aims to double its consolidated operating revenue to ¥1 trillion in 10 years by mainly expanding its hotel and real estate businesses, both at home and abroad. According to the consolidated financial results for the fiscal year ended in March, its operating revenue was ¥565.9 billion. The consolidated number of employees was 23,564 as of the end of March 2018.Speech

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